Bedrock Divorce Advisors
Tax Dilemma for Divorcees – Who Gets to Claim Head of Household?
There are many issues that must be resolved during divorce that will impact how you file your taxes each year. In addition to several potential tax credits, it is important to understand who will be eligible to file as “Head of Household.” This is very important because filing as Head of Household will typically result in a lower tax bill than filing as Single or, if you are not yet divorced, Married Filing Separately.
Generally, the Head of Household filing status is determined by your custody arrangement. The parent who has the children more than one-half of the year can claim the Head of Household filing status. The only way that both parents can claim Head of Household is if they have more than one child and each parent has at least one different child living with them for more than one-half of the year.
People sometimes mistakenly believe that claiming a child as a dependent entitles them to file as Head of Household. This is not necessarily true. To qualify as Head of Household you must meet the following requirements:
• You must maintain a household for your child (even if you do not claim them as a dependent)
• You must be unmarried at the end of the year or living apart from your spouse for more than six months
• The household must be your home and generally must also be the main home of the qualifying dependent (i.e. they live there more than half the year)
• You must provide more than half the cost of maintaining the household
• You must be a U.S. citizen or resident alien for the entire tax year
You do not need to claim a dependent to file as Head of Household. This means that even if you allow your ex-spouse to claim your child as a dependent, you can still file as Head of Household.
If you can claim Head of Household you may also qualify for the Dependent Care Credit, the Earned Income Tax Credit (this is for lower income people), as well as other rebates that may be available for that tax year.
In some cases, if you are separated, but not divorced, and are filing separate tax returns, you may be able to file as Head of Household. You will need to meet the criteria mentioned above to do this.
Deciding the filing status and who will claim dependents can have a tremendous impact on your tax situation. You may be able to save thousands of dollars in taxes. So, it is important to work with a divorce financial specialist (such as one of our Divorce Financial Strategists™) both during the divorce process and after. You need to fully understand the impact that your filing status and tax credits may have on your bottom line before you agree to a divorce settlement.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
Protect Your Credit Score During Your Divorce
If you are going through a divorce, you should immediately begin taking steps to protect your credit score. Your financial future depends on a good credit rating. Here are some tips for handling your finances during and after your divorce so that your credit score is protected.
Handling Joint Credit Cards and Other Debts
You should immediately order your credit report and find out exactly what debts you have. In your credit report you will see all debts that belong to you and your spouse as well as the accounts that belong solely to you. You should closely monitor debts that your spouse has access to, such as credit cards, bank loans, mortgages and home equity lines of credit. If you are concerned that your soon-to-be ex-spouse might borrow money in your name, you might want to sign up for a credit monitoring service. These services will notify you anytime there is a change to your credit history.
It is important to note that even if your divorce settlement stipulates that your ex-husband is responsible for payment of certain debts, if he does not pay them or declares bankruptcy the creditors will come after you for payment! The creditors don’t know and don’t care what your divorce settlement says. Because this was a debt that you both entered into, you’ll need to pay it if he can’t. Therefore, you may want to include remedies in your divorce settlement to cover situations like this. One way might be to make sure that joint assets are used to pay off all joint debt or have the property that is going to your ex-husband be placed in escrow until all debts are paid.
Close Joint Accounts If Possible
If possible, close all joint accounts. Most likely, you will only be able to close accounts that have a zero balance. But, you should call all credit card companies, banks or other creditors to request that the account be closed. Make it clear that you will not be responsible for any charges. You should also follow up with a letter stating that you want the account closed. Keep a copy of the letter as well as detailed notes of your phone conversations. In both the phone conversation and the letter, ask that the lender report to the credit bureaus that the account was closed at your request.
Stay Current on All Joint Accounts
It is very important to make payments to all joint accounts on time even though you are going through a divorce. Unfortunately divorce negotiations can go on for a long time and not making payments or paying late can really hurt your credit score. Your credit rating will go down if a payment is late or missed entirely, even if your spouse is assuming the debt.
Freeze Accounts that Can’t Be Closed
If you find that you are not able to close an account due to an outstanding balance, request that a freeze be placed on your account. This will prevent any further charges. You will still be jointly responsible for the balance, but no further debt can be added to the account. Remember to document all details related to this call and write and mail a letter. (Talk to your divorce attorney if your husband is using joint credit cards or other marital assets to travel with and/or buy gifts for his mistress. There is something called dissipation of marital assets and if this is something that your husband is doing, your divorce attorney will need to make that part of any discussions/negotiations).
Close Joint Bank Accounts
Most couples have a joint checking and savings accounts. These need to be closed as soon as possible, however you should talk to your lawyer before withdrawing money or closing your account since each state has rules about this. You will want to open a new account for yourself as soon as possible.
If you have questions about how you can protect your finances and credit, please feel free to contact one of our Divorce Financial Strategists™ here at Bedrock Divorce Advisors.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
How to Make Sure You Receive Your Alimony and Child Support Payments – No Matter What!
One of the issues that often gets overlooked during your divorce is securing your divorce settlement payments, like alimony and child support, should something happen to your ex-husband. The death of an ex-spouse, and subsequent loss of that income, could be financially devastating.
The Divorce Financial Strategists™ here at Bedrock Divorce Advisors™ bring up this issue with all of our clients because we’ve seen what losing this income can do to families. Our recommendation is that a life insurance policy be set up in such a way that you will receive a tax-free, lump-sum payment of what you would have received over time from your alimony, child support and/or other divorce-related payments.
It is important to set up this life insurance policy before your divorce has been finalized. This is because your husband could refuse to cooperate after the divorce in getting the required medical exam. Or, you may find that he is uninsurable. Either way, you need to know this before the divorce is finalized so that, if necessary, you can find alternate ways of securing your divorce settlement payments.
It is also critically important that you become the owner or irrevocable beneficiary of the policy. If you are not, your ex-spouse could stop making payments and you would never know about it until it was too late. However, if you are the owner or irrevocable beneficiary of the policy, you would be notified of non-payment of the premium and could take action before the policy lapsed.
Using life insurance to ensure divorce settlement payments can be very complex. The laws and regulations differ from state to state. Therefore, it is very important that you consult with someone who is knowledgeable and experienced in using life insurance and other methods to secure divorce settlement payments.
You might also consider setting up a disability insurance policy. Statistically there is a higher chance that your ex-husband would become disabled rather than actually passing away. If something happens to him and he is no longer able to work, he might seek a reduction in his alimony and child support payments. Unfortunately, unlike life insurance, the ex-wife cannot own a policy on her former husband. So you would need to put a mechanism in place to make sure that the disability policy payments are made.
If you have any questions about how to secure your alimony, child support and other divorce settlement payments, please contact one of our Divorce Financial Strategists™ here at Bedrock Divorce Advisors and we’ll make sure that you take the right steps.
Separated, But Not Divorced, Mother Might Have To Give Half of Lottery Winnings to Abusive Husband – A Lesson for Women Who Are Thinking About Divorce
Talk about an emotional roller coaster!
I can’t imagine what it felt like for Holly Lahti, 29, of Rathdrum Idaho, who had the winning numbers to the 2nd largest lottery jackpot in the U.S. earlier last month. And, I can’t imagine that she was terribly disappointed when she found out she had one of the two winning tickets. After all, that still leaves her $90 million – after taxes.
However, there is a blow that I am sure she never saw coming when she purchased that lottery ticket. Although Holly and her abusive husband have been separated for many years (it’s unclear if they were legally separated and that could possibly make a big difference), they never did get a divorce. Because of that, her ex-con husband may now be entitled to a substantial portion of her winnings.
The media has reported this story over and over – it appears that Mr. Lahti is a real loser. He’s been convicted of domestic battery, drug possession, and purchasing alcohol for a minor. It is reported that he has been arrested at least 15 times! There’s even an unnerving photo being circulated showing Mrs. Lahti with a black eye allegedly resulting from a blow from her husband.
Idaho is a community property state. This means that anything acquired during the marriage is considered community property. Community property is defined as all property and debt that was acquired from the date of the marriage until the marital cut-off date. If the couple is unable to agree to how to settle debts and assets (as is most likely the case here!) the court will decide for them. In Idaho, the court is allowed some discretion in deciding how the jackpot will be split. But, it will probably be a long, ugly and expensive legal battle!
You may not be a mega-lottery winner, but there is still a lesson to be taken from this happy, and yet very sad story. If you are considering divorce, you should immediately take steps to boost your chances of coming through your divorce financially secure and in control of your financial future. If you have questions about how to protect your hard-earned assets and property, please feel free to contact us to discuss your specific situation.
ABC News wants to interview wo…
ABC News wants to interview women who’ve experienced divorce. Would you like to share your story? http://abcn.ws/fK3p1L
How to Determine Alimony (also known as Maintenance in some states)
Professional business women who are the primary bread-winners in the home often wonder if they will need to pay alimony to their husband and if so, how much they will be required to pay.
That is a tough question because the laws vary greatly from state to state. In some states, there are very explicit guidelines that judges must use to determine the amount and duration of alimony. In others, they simply list “factors” that a judge should take into consideration when determining alimony. Also, be aware that some states will consider the fault of the party when determining alimony. For example, if the couple is divorcing because one of them has committed adultery, the court may consider that when determining whether alimony should be paid. That is one very good reason that you need to speak to a good divorce attorney if you plan to have sexual relations with someone other than your spouse before your divorce is finalized (this can possibly affect both alimony and child custody).
Here are some of the factors a judge might use to decide whether your spouse is eligible for alimony:
1. The standard of living established during the marriage (One of the primary purposes of alimony is to help the receiving spouse maintain a lifestyle after their divorce that is relatively comparable to their lifestyle before their divorce.)
2. Property awarded to each spouse (Alimony is usually determined after the property division has been decided.)
3. The duration of the marriage
4. The income and property of each spouse
5. The ability of the person to become self-supporting
6. Present and future earning potential of both spouses
7. Whether there are children living in the home
8. If there was lost or reduced earning capacity of the person who is asking for alimony/maintenance that resulted from delaying his or her career during the marriage
9. Tax consequences
10. Contributions and services of the spouse who is asking for alimony or maintenance
11. Whether either spouse has wasted marital assets
12. Actions taken by a spouse in contemplation of the divorce
13. Any other factor the Court determines is relevant
There is also something called Rehabilitative Alimony, which is often awarded in short-term marriages.
This type of alimony is usually awarded for only a few years and its purpose is to allow the receiving spouse to go back to school or to get job training so that they will quickly be able to support themselves financially.
It is really not possible to know whether you will be required to pay alimony until you consult with an experienced family law attorney and a qualified divorce financial analyst. If you are contemplating divorce, please call us at 917-602-6977 for a free, 20-minute, no-obligation consultation with one of our Divorce Financial Strategists™.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
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I am now an official contributor for the Divorce section of the HuffingtonPost!!
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January is the Busiest Month According to Divorce Professionals – Are You Ready?
January is the busiest month for divorce professionals. I have not seen official statistics proving this, but I can tell you that we, along with our divorce professional colleagues, all notice increased activity in January.
Many say this is due to families trying to “stick it out” through the holidays for the sake of their children, and others say that people make this decision as one of their New Year’s resolutions. No matter what the reason, if you find yourself at the beginning of the divorce process you should organize as much as possible to make the process go more smoothly.
Below you will find a partial list showing you what financial information you should begin gathering:
1. Income Tax Returns. Completed personal, corporate, partnership, joint venture, or other income tax returns (federal, state and local), including W-2, 1099, and K-1 forms, in your possession or control for the last 5 years, including all amended tax returns. Do you expect any tax refunds?
1A. Business Financial Statements.
– Net worth statement – balance sheet or list of assets and liabilities
– Income statement – cash flow or income and expense statement
2. Income Information. Current income information, including payroll stubs and all other evidence of income (investment property, rental/lease agreements, dividends, interest, royalties, lottery winnings, etc.) since the filing of your last tax return.
3. Personal Property Tax Returns filed in this state or anywhere else from the start of the marriage.
4. Banking Information. All monthly bank statements, passbooks, check registers, deposit slips, canceled checks, and bank charge notices on personal and business accounts, certificates of deposit, and money market and retirement accounts from banks, savings and loan institutions, credit unions, or other institutions in which you or your spouse has an interest.
5. Financial Statements submitted to banks, lending institutions, or any other persons or entities, which were prepared by you or your spouse at any time during the last five (5) years.
(To download the full list of 29 items, please go to our Bedrock Divorce Facebook Fan Page here.)
We would greatly appreciate it if you could “Like” our fan page while you are there.
If you are a woman contemplating divorce and you don’t have easy access to all of this information, do not worry! Oftentimes we can help you find easy ways to obtain the information you need. Just begin gathering as many items as you can, and then make an appointment with a Divorce Financial Strategist™ or divorce financial analyst. They will help you (and your divorce attorney) make sense of your current financial situation along with the future financial and tax implications of your various divorce settlement options. The sooner you start gathering this information, the less likely you will still be dealing with your divorce next January!
Important Reasons That Career Women Should Consider Using a Divorce Financial Strategist™ or Divorce Financial Analyst
If you are a busy career woman who is in the midst of an emotionally-charged divorce you might be dealing with several issues that you had never expected to face. This is especially difficult for those of you who once had a clear and firm plan for your financial future. You took the time to work with your spouse to ensure that the both of you and your children would be financially secure.
Now everything’s changed.
No matter whether the divorce was your idea or something thrust upon you, you now are wondering what tomorrow will look like – much less the rest of your financial life. You might be tempted to accept the first settlement proposal suggested by your divorce attorney or by your spouse’s attorney just to get things over with. As tempting as this may be, you should take your time with making these critical decisions because, for the most part, they cannot be undone.
Getting through the financial issues is often the toughest part of a divorce. But it doesn’t have to be this way. Meeting with a Divorce Financial Strategist™ (a Certified Divorce Financial Analyst [CDFA™] with advanced training in divorce financial planning strategies and asset protection) can ensure your financial protection now and in the future by helping you fully understand the financial and tax implications of your proposed divorce settlement.
Here are some of the ways a Divorce Financial Strategist™ or Certified Divorce Financial Analyst can help you:
- Planning – A divorce financial analyst can help by developing a short-term and long-term financial plan so that you can make sure that the decisions you make today won’t negatively impact your financial future.
- Researching – A divorce financial analyst traces and illustrates assets, debts, income and expenses as well as assesses tax consequences and prepares reports showing alternative settlement options.
- Strategizing – By developing and analyzing multiple financial scenarios, a divorce financial analyst can help you understand the immediate and long-term implications of each proposal.
- Reviewing – A divorce financial analyst can review settlement proposals, prepare schedules to compare alternative outcomes, and provide an objective second opinion to help you make more informed decision.
If you would like to see how one of our Divorce Financial Strategists™ can help you clarify the financial details of your divorce and get you a better settlement, please call us at (917) 602-6977 or email us at info@bedrockdivorce.com to schedule a free, no-obligation, half-hour consultation.
I just scheduled a Meetup for …
I just scheduled a Meetup for Smart Financial Strategies For Pre-Divorced Women. You should come! http://meetu.ps/b82f
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