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Checklist and pen When a joint investment account is divided, the financial institute will use only one Social Security number to report the earnings and thus only one 1099 will be issued for that account. For example, following their divorce, Dick and Jane divided their joint investment account and transferred their own share into an individual investment account solely in their own name, on November 1st. If the “primary” Social Security number on the joint account is Dick’s, he will receive one 1099 for the joint account earnings earned from January 1st– October 31st and a second 1099 for the individual account earnings earned on his individual account from November 1st – December 31st. And, Jane will receive only one 1099 for the individual account earnings earned on her individual account from November 1st – December 31st. If the goal is to share the tax liability for the joint investment account earnings, this can be accomplished in a few ways.
  • The tax liability is projected during the divorce process and an adjustment is worked into the property division.
  • The spouse who received the 1099 adds the investment income to their tax return and language is added to the decree outlining the agreement on how to share the tax liability at tax filing time.
  • The spouse who received the 1099 can “nominee”the correct portion of investment income to the other spouse by filing a 1099 and 1096 with the IRS and furnishing a 1099 to the other spouse.
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185311153-tax-refund-gettyimagesThe child tax credit may save you money if you have a qualified child.  Here are the top five things to know about this credit as it relates to divorce:
  1. Depending upon your tax filing status and your income you may be eligible for a child tax credit of up to $1000 for each qualifying child you are eligible to claim on your tax return.
  2. An “Additional Child Tax Credit” is for individuals getting less than the full amount of the child tax credit.  This “Additional Child Tax Credit”, may give you a refund even if you do not owe any tax.
  3. Qualifications by the IRS the child must pass relating to divorce include:
    1. Child must have been under age 17 at the end of the tax filing year
    2. The child must be your son, daughter, stepchild, foster child, or your adopted child
    3. The child must not have provided more than half of their own support for the year
    4. The child must be a dependent that you claim on your federal tax return
    5. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien
    6. In most cases the child must have lived with you for more than half of the tax filing year
  4. There are income limitations that may reduce or eliminate your ability to qualify for a Child Tax Credit
  5. See IRS publication 972 for more information on the Child Tax Credit
The child tax credit is one way you may be able to lower your out of pocket tax obligation and in some cases even receive a refund if you do not owe any tax. Be sure to consult with a qualified tax preparer to determine your eligibility to qualify for the child tax credit.
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184951937There are few things that distinguish a new phase in life more than changing one’s name. However, one has to do a thorough job of informing the “world” of this change – such as identity providers, business relationships, friends and family. Identity providers – they make it official. An obvious place to start, they include the following:
  • Driver’s license: go to your local Department of Motor Vehicles office, fill out the appropriate form and submit it with the required documents
  • Passport: go to travel.state.gov, fill out Form DS-5504 if your passport is less than one year old or DS-82 if older than one year, and submit it with the required documents
  • Social Security Card: go to socialsecurity.gov, fill out form SS-5 and submit it with the required documents
  • Voters Registration: re-register at www.sos.state.mn.us
  • Veteran’s Affairs: call the DMDC Support Office at 800-538-9552 to update your DEERS information
Certified Divorce Decree Essential to changing your name on the identity documents listed above, is providing a “certified” divorce decree or other legal name change document.  To obtain a certified divorce decree, request one by letter or in person, from the records center at the court where your divorce was filed.  You will need:
  • Names listed in the decree
  • File number
  • Courthouse location
  • County of the court
  • Fee per Copy (typically about $16)
If your divorce was filed in Minnesota, you can find information on where to request a certified divorce decree at www.mncourts.gov. It is recommended that you order several.  Most identity providers will require a certified copy, and often don’t return them. Keep in mind that removing the staple voids your certified copy! Business Relationships Business relationships are also essential. Think about every business, medical or financial professional and financial institution with whom you interact and start making a list. Then, add on utilities, shopping websites, magazines and other publications, as well as charitable organizations.  The sooner you start, the more likely your lights will stay on, your checks will be honored and your will get the packages you ordered. IRS The IRS verifies the names and social security numbers on every tax return with the Social Security database. If you file your tax return before changing your name with the Social Security Administration, use your former name. Any mismatch will result in your return either being rejected immediately or the IRS sending a letter requesting clarification, which will delay any refund you may be due until you reply. Friends and Family Your friends and family are the easiest to inform in the internet age; just send out a mass email. Remember to change your social media profiles too.  Better yet find a way to celebrate this change! Make an event of it and all your friends and acquaintances are more likely to remember that you have moved on to a new phase in your life.
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155350102This time of year, it is often important to consider the tax implications of filing for divorce. In both federal and state taxes in Minnesota, you cannot file jointly if you are divorced before the end of the year. If your divorce is finalized in 2014 (signed off by the Judge, not just filed), you are deemed divorced and can only file separate, individual returns. If you hold off and divorce in the beginning of 2015, you can still file jointly for 2014. Everyone’s financial situation is different. Whether or not it is financially beneficial to file jointly or separately in any given year varies with each couple. However, some things to consider regarding taxes include:
  • Spousal maintenance payments (deductible to the payer and income to the recipient)
  • Distribution of any investments or retirement distributions are often taxable
  • Property taxes and interest on mortgages may be shared or their benefit maximized with one or the other claiming the deductions
  • If filing separately, status of Head of Household or Single may impact the tax burden
  • How to utilize dependency exemptions
You should consult with your tax planner on the financial implications of divorce date. If you decide it is better to wait to divorce until 2015, you can still sign and finalize your decree this year – you should just hold off on filing it. The agreements are binding but you may be able to maximize your tax benefit. A good collaborative divorce attorney and financial neutral can assist in reviewing these implications as well.
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A divorce is not only an emotional event, it is a financial event. As the year ends, people often focus on tax implications of divorce. Being planful and mindful of taxes may benefit both spouses moving forward. Having a good collaborative team can help you work through tax issues and make the best financial decisions possible. Here are some things to think about regarding taxes and divorce: If you are still married on December 31, you can file your taxes jointly as married–even if you are divorced by the time your taxes are due. You may want to work together to determine the best overall tax scenario and work together to save the family the most money possible in a given tax year.
  • You may want to include language about the tax consequences for your last year of marriage in the decree. Clarifying that any liability or refund for that year is shared, could save you effort later in the year when one or both of you have a claim to the other’s refund/liability.
  • The IRS does not care about the specifics of your property division. Unless it is explicitly in the decree, the IRS will not consider whether one of you received more property in exchange for less tax liability. The IRS operates on its own and you should obtain attorney advice on tax liability before finalizing the divorce.
  • You may want to look at the tax implications of filing as Head of Household v. Single post-divorce. Who will claim the dependent exemptions? Do the exemptions need to accompany other benefits claimed such as healthcare reimbursement or child care benefits? Taking the time to think through these issues before finalizing the divorce could save you time and money later.
Because the ramifications of financial decisions can linger long after a divorce is finalized, it is important that you work with an attorney who is experienced in divorce and financial issues so that there is less likelihood that you will have later financial questions. The collaborative process allows for open and thorough examination of tax issues and financial impacts down the line.