This course will provide an overview of the different tax and other financial considerations when dealing with issues of divorce. This includes the costs involved, alimony, and filing status, as well as considerations when dealing with estates, including income tax returns, estate and gift taxes, etc.

1. Divorce & Estates:
Tax And Other Financial
Considerations
Presented by
Rick Lahr, CPA

2. I. Divorce
A. Three Major Causes of Divorce
1. People do not want to work at marriage
2. People do not know how to talk to each
other and they know even less about
listening
3. Marital expectations rarely align with the
realities of what life is like inside a marriage

3. I. Divorce
B. Property Settlements
1. Generally no gain or loss is recognized on a
transfer of property incident to divorce
2. Federal gift tax does not apply to most
transfers of property between spouses
3. If sale of jointly-owned property report
recognized gain or loss on income tax return
for the year of sale
4. Special rules apply to separated and divorced
individuals selling a main home

4. I. Divorce
C. Costs of Getting A Divorce
1. Cannot deduct legal fees and court
costs
2. May be able to deduct
a. Legal fees paid for tax advice and to get
alimony
b. Fees paid to accountants, actuaries, and
appraisers for services in determining tax
or in helping to get alimony

5. I. Divorce
D. Alimony
1. Before September 1, 2011
a. In 1995 Texas became the last in the
union to adopt any form of alimony
b. Called “spousal maintenance” it was
among the most restrictive in the nation
and was rarely used

6. I. Divorce
D. Alimony
2. After August 31, 2011
a. Maximum amount of “spousal
maintenance” was increased from $2,500
to $5,000 a month, or 20 percent of gross
earnings (whichever is less)
b. “Minimum reasonable needs” determined
on a case-by-case basis
c. The length of the marriage can
determine the duration of support

7. I. Divorce
D. Alimony
3. Alimony is deductible by the payer and
the recipient must include it in income
if:
a. The payment is in cash
b. The divorce or separation instrument does
not designate the payment as not alimony
c. The spouses are not members of the same
household at the time the payments are
made

8. I. Divorce
D. Alimony (continued)
3. Alimony is deductible by the payer and
the recipient must include it in income
if:
d. There is no liability to make any payment
(in cash or property) after the death of the
recipient spouse
e. The payment is not treated as child
support

9. I. Divorce
D. Alimony
4. Recapture of alimony
a. If alimony payments decrease or end
during the first 3 calendar years
b. Change in divorce or separation
instrument
c. Failure to make timely payments
d. Reduction in ability to provide support
e. Reduction in support needs

10. I. Divorce
E. Filing Status
1. Married filing jointly
a. Joint and several liability
b. Innocent spouse relief
c. Separation of liability
d. Equitable relief
e. Injured spouse refund of overpayment

11. I. Divorce
E. Filing Status
2. Married filing separately
a. Responsible only for the tax due on
return filed
b. Separate returns, in almost all instances,
result in a larger combined tax because
special rules apply

12. I. Divorce
E. Filing Status
3. Head of household
a. Unmarried or “considered unmarried” on
the last day of the year
b. Paid more than half the cost of keeping
up a home for the year
c. “Qualifying person” lived with you in the
home for more than half the year

13. I. Divorce
F. Exemptions For Dependents
1. Qualifying child
2. Qualifying relative
3. Dependent cannot claim exemption on their
own tax return
4. Written declaration (on Form 8832 or similar
statement) to release exemption (or revoke
release of claim to exemption) included with
tax return of parent claiming the exemption

14. I. Divorce
G. Publication 504 - Divorced Or
Separated Individuals
H. Publication 555 - Community
Property

15. II. Estates
A. Personal Representative
1. Executor, administrator, or anyone
who is in charge of the decedent’s
property

16. II. Estates
A. Personal Representative
2. Duties
a. Collect all assets
b. Pay all creditors
c. Distribute remaining assets to the heirs or
other beneficiaries
d. Apply for an employer identification number
e. File all (estate, gift and income) tax returns
when due
f. Pay the tax determined up to the date of
discharge from duties

17. II. Estates
A. Personal Representative
3. Fees
a. If in the trade or business, report on
Schedule C
b. If not in the trade or business, report on
Form 1040 Line 21

18. II. Estates
B. Final Income Tax Return For
Decedent
1. Taxable period ends on the date of death
2. Surviving spouse can file a joint return for
the year of death
3. Qualifying widows and widowers may be
eligible to use married filing jointly tax rates

19. II. Estates
C. Income In Respect Of A Decedent
1. Examples
a. Deferred and uncollected compensation
b. Retirement plans
c. Accrued dividends, interest, rents, and
royalties
d. Uncollected proceeds from gain from the
sale of property deemed to occur before
death

20. II. Estates
C. Income In Respect Of A Decedent
2. Included in the income of:
a. Decedent’s estate, if the estate receives it
b. Beneficiary, if the right to income is
passed directly and the beneficiary
receives it
c. Person to whom the estate properly
distributes the right to receive it

21. II. Estates
D. Income Tax Return Of An Estate
1. Calendar or fiscal year election
considerations
a. Defer income
b. Manage tax rates
c. Manage tax payments (if administration
may take longer than 12 months)
d. Minimize number of returns required to
be filed

22. II. Estates
D. Income Tax Return Of An Estate
2. Income to include:
a. Filing requirement if gross income is $600 or
more
b. All items received or accrued during the tax
year
c. Character of asset generally same as if in the
hands of the decedent
d. Holding period considered to be for more
than 1 year
e. Basis of property usually is fair market value
at date of death

23. II. Estates
D. Income Tax Return Of An Estate
3. Exemption and deductions
a. Allowed exemption deduction of $600 in
figuring taxable income
b. Charitable contributions
c. Administration expenses
d. Income distribution deduction

24. II. Estates
E. Estate and Gift Taxes
1. In 2015, the credit on the basic
exclusion amount is $2,117,800
(exempting $5,430,000 from tax)
2. 2013 – 2016 gift tax annual exclusion is
$14,000
F. Publication 559 – Survivors,
Executors, and Administrators

25. If you have any questions
please feel free to contact
Rick at:
214-635-2520
rlahr@gppcpa.com