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.
choosing an attorneyI recommend you research and interview several divorce attorneys. This can help you develop and clarify some of your goals and interests and help confirm the choice of process you and your spouse want to use. It’s important to keep in mind that an attorney is only one member of what hopefully will be a team of professionals to help you on your “getting unmarried” journey. Child specialists, financial specialists specifically experienced in divorce planning, and possibly a coach should also be considered as a part of your team. My reason for suggesting these other professionals is simple. They each are experts in their respective fields. Attorneys are not really trained to be financial specialists nor are they trained to be therapists or child specialists. They are trained to be attorneys and are a much needed part of your divorce team. Divorce however, is more than a legal event. Getting unmarried is a financial, emotional, and relational event as well as a legal event. Think about it, if you were to have heart surgery would you choose a general practice physician? I doubt it. Getting unmarried is like having open-heart surgery on your life’s finances, your children and multiple relationships. You will, in my opinion, be better served by having a team of experts in their respective fields assisting you and your spouse on this journey. Now back to choosing an attorney. You want someone who supports you and the type of process you and your spouse want to use. You will both want someone who listens to you, someone who doesn’t necessarily tell you what you want to hear but rather someone who has the wherewithal and will honestly be a realistic advocate. If an attorney promises you specific outcomes in your divorce, I would encourage you to run the other way; don’t walk. A good divorce attorney knows there is no certainty of outcomes in the divorce arena. You want a problem solver not a problem maker. There are plenty of good problem solver types of attorneys around. Unfortunately, as in any profession, there are some problem makers as well. How do you find the problem solvers? In today’s wired world you can Google the attorneys name, check out their website, LinkedIn profile and Facebook pages. You can do all this before ever picking up the phone. If you do thorough research and interview several attorneys you should be able to distinguish between the problem solvers and problem makers. You may want to consider making an initial phone call to an attorney before scheduling an interview session. This can tell you how quickly they return calls and how connected you might feel towards them from your initial phone conversation. It will also save you and the attorney time if you decide not to set up a face-to-face interview after the phone call. When interviewing attorneys, ask how they will communicate with you. Some clients think their attorney and other professionals should be available for them around the clock.  Remember you are not their only client and they have a personal life and schedule as you do. Ask them if they will be communicating directly with you or will their assistant or paralegal. Ask them what you should expect in terms of them replying to your phone calls and/or emails. It’s better for both you and the attorney to have clear expectations up front to avoid disappointment later on. Traditionally, I believe most individuals begin the process of getting unmarried through contact with an attorney. Part of the reason for this is our culture including media has conditioned us to first approach divorce through the legal channel. While I certainly would not discourage anyone from beginning the divorce process through the legal avenue, there are other approaches. It may be through a marital counselor, therapist, financial professional, divorce coach or some other channel. While the majority of divorce cases still begin with attorneys on board, it is not unusual for a couple to begin the process with a child specialist, financial specialist, or divorce coach, brining the attorneys on board at a later time. This approach is dependent upon the comfort level of each spouse, their priorities, needs, and concerns. The point is the divorce process can begin in a number of avenues and does not necessarily have to always begin with the attorney. In my next and final post in this series I will offer some questions for you to consider when interviewing an attorney.
Prenuptial agreements – “What’s Love Got to Do With It?” For people planning their wedding, the thought of entering into a prenuptial agreement may seem unromantic and pessimistic. It addresses what would happen if your marriage doesn’t work out. But a well thought out prenuptial agreement can give you and your spouse control over the terms of your divorce, if that should happen, helping you avoid future litigation, and it also can be a process for discovering your expectations and views about financial issues. In Minnesota, to enter into a valid and enforceable prenuptial agreement, you must sign a written agreement before two witnesses and a notary public before you are married. The agreement must include a full disclosure of each person’s income and property and a statement that each has had an opportunity to consult with legal counsel of their choice before signing the agreement. The better practice is to enter into such an agreement well before the wedding date so each of you has an opportunity to consult with their own attorney. The issues which are most often addressed in prenuptial agreements are deciding how property and debts existing at the time of marriage and acquired during the marriage will be divided in the event of divorce. Some agreements address whether there will be spousal support (alimony) awarded in a divorce and how much will be awarded. These agreements are generally enforced by Minnesota courts unless there are extreme inequities resulting from enforcement at the time of the divorce. Agreements on child custody and child support are not enforceable as part of prenuptial agreements in Minnesota. The court in a divorce examines the best interests of the children at the time of the divorce in deciding who should have custody, what the parenting time should be, and how much child support should be paid. Couples who have acquired substantial assets before the marriage, who have been married before and have children, or who want to preserve their estate plans for their adult children from previous marriages, enter into prenuptial agreements to ensure that their goals and financial expectations are followed in the event of a divorce. These are not the only couples who may need prenuptial agreements. For example, with the recent legalization of same-sex marriages in Minnesota, some-same sex couples contemplating marriage may need to consult with legal counsel to learn the differences in how their income and property will be treated once married under Minnesota law and whether a prenuptial agreement may be appropriate. Professionals are available for consultations on these issues. The collaborative process gives couples (not the court) the power to shape their future financial destiny. The collaborative process also ensures that the needs and interests of each person are addressed, with full disclosure of financial information, advocacy for each person and neutral professional financial and other advice. Making sure each of you have the information you need is what love has to do with it.