How Can We Make Decisions During Our Divorce When We Couldn't Make Decisions in Our Marriage?

There are many decisions that every couple has to make in the process of getting a divorce.  How will the assets be divided?  Who will keep the house and, if we don’t sell it, how will we determine the value of it?  How will we share time with the children?  How will we divide our household items?  How will we pay for the children’s expenses?  How can we make sure we both have enough money to live on month to month? 

Help in the Decision Making Process

People typically feel overwhelmed by these questions yet it is difficult to turn these decisions over to lawyers or a judge and relinquish control over the outcomes.  In a collaborative divorce, unlike mediation or litigation, there is a team of professionals to help you determine what decisions need to be made and to coach you through the process of making them.  You have your own lawyer in the room, along with the lawyer for your spouse, to make sure all the legal issues are covered.  There is a financial professional who can discuss the tax consequences of the decisions you are making along with showing the long term financial outcomes of the options you are considering.

 There is also a mental health professional who, having mediation training, is able to teach you a decision making process, something most married couples have never developed.  The first step is to define the question to be answered or the problem to be solved. Second, all information relevant to the problem to be solved is gathered and verified.  The third step involves a discussion of what is important to each person, their reasons for wanting a specific resolution.  For example, you have one orange and you both want it.  Further discussion of interests reveals that the wife wants to make marmalade and only needs the zest and the husband wants the only the juice for a recipe.  A judge would merely cut the orange in half, but in the collaborative process the solutions can be creative and based upon the interests of the parties. 

Once the information is gathered and the interests are known, the brainstorming process of generating options begins.  No option is off the table.  At this point, more information may be needed about specific options to determine their viability.  Once that is gathered, the next step is to evaluate the options by discussing the pros and cons of any that either one of the couple feels might work. Often the final solution is a hybrid of two or more options.  This discussion is facilitated by the team and leads to the final step, a decision about how to proceed. 

Lessons Learned in the Process

These discussions can still be difficult and emotional, but couples who are willing to follow the process and stick with it, will emerge with a final divorce settlement document.  The hope is that they also have learned more about how to make decisions and are better able to work together to raise their children.

The collaborative divorce process provides many couples with the opportunity to make well informed decisions. It is a supportive process where new skills can be acquired and utilized after the divorce is final. Reach out to Nancy Williger or explore our website to learn more about the collaborative divorce process.

Nancy Williger can be reached at (314) 993-4001

Website: http://nancywilliger.com

Property Division in Divorce: How to Figure Out Who Will Get All the “Stuff”

Even in relatively short, and certainly during longer marriages, couples acquire and accumulate property.  This property might include cars, real estate, furniture, artwork, and miscellaneous “stuff.” Some of the items (for example, kitchen dishes, utensils, and glassware) may not have a lot of value if one went to sell them but could cost a fair amount of money to replace. When divorce is on the horizon, people often wonder how all of it will be divided and they want to make sure they get their fair share.

If your divorce is litigated in court, property division can be very complicated and contentious.  All property must be (1) “characterized” or identified as marital or joint (with both parties having an interest), separate (belonging only to one party) or partly marital and partly separate, (2) valued, and (3) allocated (awarded) to one or both parties.   Each of these determinations can be both complex and time-consuming and, consequently, expensive.

Identification of property as marital or separate

To determine what property is marital the court will try to determine when it was acquired (if during the marriage, it’s probably marital), whether it was inherited by or gifted to one party and kept separate from the other party during the marriage (this is probably separate property), or whether it was brought by one party to the marriage and then shared with the other party (this might be part separate and part marital).  Property that is part separate and part marital might include retirement assets or real estate.

Valuation of property

Each item of property must also be assigned a value.  Some property can be valued using online resources (like Kelley Blue Book for cars) or even by the parties (an owner of real estate can estimate its value). More valuable property (for example, real estate, artwork or antique furniture) may need to be valued by a professional appraiser.  Arguments often erupt over property valuations because one party or his/her appraiser may arrive at a value wildly different than that arrived at by the other party or

His/her appraiser.  A “battle of the appraisers” at trial then ensues, leaving it to the judge to decide who is right. This is a very expensive scenario.

Division of property

In a litigated divorce, the judge will decide who gets what and in what proportions.  One party could be given a greater percentage of the property if there is marital misconduct, or if other circumstances are present which persuade the judge that an unequal division is “equitable” or fair. Judges often split the assets equally between the parties even when there is bad conduct by one party.

Complicated and a bit maddening, right?

Division of property in collaborative divorce – the story of the lemon

In collaborative divorce, making decisions about property is so much more civil. There is a story in collaborative circles about dividing an item of marital property: a lemon.  In a litigated divorce the judge is likely to order that the lemon be cut and one-half of it be awarded to each party. On the surface, this would seem to be fair.  When one considers, however, that one of the parties wanted the juice of the lemon to make lemonade and the other party wanted the zest of the lemon to make pie, the result no longer seems fair or equitable since the lemon is now unusable by both parties for their respective intended purposes.  This is why, in collaborative practice, the parties focus on the needs and interests of each.  Why do you want the lemon? Do you need all of it or will less than the whole meet your needs? Could you take the peach instead?

In the collaborative process the parties can together assign values.  If they can’t agree on value, they can together choose one or more appraiser(s) to assign value(s) and decide how they want to use those values.  Most important, the parties can, with the help of the collaborative team, decide who gets what and in what proportions:  one party might get more of one asset and less of another, or it will be a 50-50 split of all property, or that one party will stay in the house for a period of time and that it will then be sold, or any number of creative solutions that make sense for your family.

When you and your spouse focus on your respective needs and interests, as you will in the collaborative process with the help of your collaborative team, you can reach unique solutions that are individualized for your family.  As much as a judge may want or try to do that, he or she is unlikely to reach a result that is exactly right for your family. And you will have spent a lot of money in the process.

Choose collaborative divorce.

Deciding upon and transitioning property in divorce can be daunting.  Certain divorce processes support a better planned transition than others.  To learn about your Missouri divorce process options contact one of our experienced St. Louis Collaborative Law professionals today.

Cynthia Garnholz is a St. Louis family law attorney, collaborative law professional and trained mediator.  She is experienced with helping one or both spouses achieve settlement.  To learn more about your Missouri divorce options give her a call or visit her website.

Phone: 314-725-5430

Website:  http://GarnholzLaw.com

Collaborative Practice and the Economics of Divorce

Facing a divorce is a daunting, sometimes frightening prospect, and “How much will my divorce cost?” is perhaps the most consistent concern among those considering ending their marriages. As with so many other divorce-related issues, the answer is usually, “It depends.”

Aside from issues such as valuation, misconduct, hiding assets, addiction, and dissipation, all of which can add to the cost of a lawyer’s services, the process by which the divorce takes place can play a major role in increasing or decreasing the overall cost.

In a collaborative divorce, each spouse has a lawyer, and other professionals, including a financial specialist and mental health coach, are routinely included as part of the problem-solving team. A child specialist may also participate in the process. With all of those professionals involved, it may sound as if a collaborative divorce is unaffordable for many couples.

There are, however, good, solid reasons a collaborative divorce will likely save you money in the long run. Here are two:

The Right Professional for the Job:

Lawyers know the law and they know about negotiations. They are not, however, as well-versed in financial issues as a financial advisor or CPA. The financial professional assists not only in gathering the financial information but also in analyzing tax consequences, and suggesting ways of saving taxes. The mental health professional keeps the divorcing couple on task by helping them cope with the challenging emotions they are experiencing, and uses their knowledge of child development to help the parents create a workable parenting plan to serve the children’s best interests.

Creating a Positive Track Record Today for Success Tomorrow:

Because the traditional divorce process is based upon the civil courts model of one party opposing the other, divorcing spouses find themselves having both to attack their partner and defend themselves, often at the cost of upsetting and alienating their children. Then, when the divorce is complete, the warring parties have to figure out a way to engage in cooperative parenting. Having spent months or more staring at each other across battlements, they now have to figure out a way to sit together at parent-teacher conferences, cooperate around scheduling changes, and plan birthday parties together.

A collaborative divorce is conducted using interest-based negotiations, a system of coming up with solutions to difficult problems by taking into account what each person needs and wants, rather than by pointing accusing fingers. When spouses learn to listen to each other, a skill that is constantly reinforced in the collaborative process, they discover that, even though they no longer want to be intimate partners, they can learn to work together for their children’s benefit. Then, when changes need to be made to the parenting plan or to the support arrangements, they know that, having worked peacefully through their divorce, they can return to the bargaining table, rather than starting new battles, thereby saving both their financial and emotional resources.

When considering how you want to conduct your divorce, think not just about your immediate pain or anger but also consider what you want your future and that of your children to look like. Avoiding future conflict will bring peace to you and your family, and will save you thousands of dollars as you avoid court battles over enforcement and modification of your divorce judgment.

Navigating and transitioning the divorce process can be daunting.  Certain divorce processes support a better planned transition than others.  To learn about your Missouri divorce process options contact one of our experienced St. Louis Collaborative Law professionals today.

Alan Freed is a St. Louis family law attorney, collaborative law professional and trained mediator.  He is experienced with helping one or both spouses achieve settlement.  To learn more about your Missouri divorce options give him a call or visit his website.

Phone: 314-244-3653

Website: http://pcblawfirm.com

Protecting Your Credit After Divorce

Many people overlook the importance of credit after divorce.  From start to finish divorce can feel more like a whirlwind than an orchestrated and well-planned process.  Most couples will only realize the importance of protecting their credit after divorce.  The best approach to protecting your credit is to be proactive.  I've outlined the basics of understanding your credit and steps you can immediately take to protect it.

3 Steps to Protect Your Credit Before, During, & After Divorce

What is Credit?

Credit refers to your ability to borrow.  Your credit is a reflection of your reputation as a borrower.  When you try to obtain loans or a line of credit your “credit” gives the lender information that tells them how likely you are to repay the loan or line of credit.

Understanding the Impact of Low or No Credit After Divorce

Your credit determines your ability to buy something without requiring an all-cash payment or a cosigner.  So, if you have a low credit score or you have no credit history of your own, then it will be difficult to qualify for loans independent from someone else.  Little or no credit can make it difficult to obtain a loan for buying a house, renting an apartment or buying a car.  The inability to obtain these items independently can make it hard for people to begin a financially independent single life post-divorce.

How Do Lenders Acquire Credit Information?

Lenders, credit card companies, insurance companies, landlords, and even some employers will pull your credit report.  Your credit report is a collection of information that tells them things like:

Your credit report is the master document behind your credit score.  It serves as your reputation for paying your debts and bills.

3 Steps to Protect Your Credit Before, During and After Divorce

Critical Fact to Understand About Your Credit After Divorce

It’s important to remember that divorce won’t affect your credit directly, but for the reasons mentioned above, divorce can affect your credit indirectly.  The best action you can take is to be proactive, be informed, and make sure you know the loans and accounts you are responsible for.

Be mindful that when your name is tied to a debt you are responsible for the payment - even when the divorce decree states your former spouse is responsible for it.   So, if your former spouse fails to make a timely payment, or fails to make any payments after the divorce, then your credit can be impacted by their non-payment.

In most situations, the financial institution only cares about the name(s) associated with the debt.  Unless your name is removed from joint debts in the divorce process, the financial institution will come to you for payment when your former spouse fails to pay.

Transitioning to the divorce process while planning for your financial future is multifaceted and requires a multipronged approach.  Certain divorce processes support a better-planned transition than others.  To learn about your Missouri divorce process options contact one of our experienced St. Louis Collaborative Law professionals today.

Nicole Davis is a certified divorce financial analyst, trained mediator and collaborative law professional.  She is experienced with helping couples achieve a good financial settlement.  To learn more about divorce finances give her a call or visit her website.

Phone: 314-272-0727

Website: https://www.reliancefinancialadvisor.com

A Tale of Two Houses

Money has emotion attached to it. Money represents security and safety. Lack of money means insecurity and fear. Divorce means money will be split up. Splitting one pot of money into two pots of money creates emotion, and rarely are these emotions positive.

For many in divorce, it’s a surprise that their 401k is a marital asset. This happened to me. I had worked hard to save the money in my work retirement plan and I was proud of what I had managed to put aside. With an ex who was a small business owner, that retirement nest-egg was critical. When it came time to split up, however, I wanted to hold on to what I felt was my retirement. In my mind, it was mine! In reality, it was not mine, it was a marital asset and subject to being split in the divorce. This misunderstanding on my part caused me to have angst and to feel anger, which complicated the negotiations and created more acrimony.

This is, sadly, an unfortunate and common scenario. For many, the money they have saved in their work retirement account is the bedrock of their retirement plan. Losing any of it causes insecurity and fear, which in turn causes anger, resentment and the possibility of a protracted fight in divorce court, aggravating the process and costing even more money with professionals.

The bottom line is this: be aware that any savings accumulated in the course of a marriage is a marital asset and subject to be split in divorce.

Work to put your emotions aside as you make decisions that will impact your future, your soon-to-be-exes future and possibly your children’s futures.

Money represents security. In the process of divorce, look for the ways to create and rebuild two new foundations for security where there once was just one. Remember, your family is still a family, even when there are two houses.

To learn more about your divorce process options reach out to one of our experienced St. Louis Collaborative Law Association professionals today.

About the Author : Laura Boedges

Laura is a financial professional and former member of CFLA.

Buying a House After Divorce

If not already, then at some point in the future you and your spouse will live separately.  Like many people, you may think about buying a house after divorce.  If this is your goal, then there are several things you will need to consider.  Protecting your finances will need to be a top priority.  The sooner you start planning the more prepared you will be to accomplish your goal.

Here are 4 Financial Tips to Buying a House After Divorce

Establish Your Income

It will be important to establish your own income.   For you, this may be easy or challenging.  Perhaps you're established in your career and currently earn income.  Or, perhaps you are receiving income from a pension, social security, dividends or interest.  Regardless of your situation, it will be important for you to establish your income because lenders consider income as part of your ability to repay a mortgage.  Sporadic income will reflect negatively on your ability to repay a mortgage.

Establish Your Cash Flow

The amount and frequency of your income will impact how much house you can afford.  It will also determine the funds available to pay your monthly expenses.  You will need to do an evaluation of the money available for housing expenses.  This is calculated as:

Income - Basic Expenses (before housing) = Money Available for Housing Expneses

You will then need to calculate the expenses associated with buying a house after divorce.  It might help to think of your expenses and how they fall into these categories:

Once you know your ongoing monthly housing expenses you will calculate how much money you have left after basic needs and housing expenses - this is called discretionary income:

Money Available for Housing - Ongoing Monthy Housing Expenses = Discretionary Income

Helpful Tip:  It can be challenging to think of all the potential expenses related to buying and owning a home.  Here are some things to keep in mind about one-time purchase expenses and ongoing monthly expenses:

One-time Expenses of Buying a House After Divorce:

Ongoing Expenses of Buying a House After Divorce

Establish Your Credit

You will want to establish your own credit as soon as possible.  This could take some time if you have little credit history or when your credit has been established jointly with your spouse.  While married, you may not have opened loans or charge cards in your name individually.  Most joint loans and credit cards are closed during the divorce process.  The closing of those accounts can negatively impact your credit.

If this happens, then it can be difficult for you to qualify for loans and charge cards in your name solely.  There are steps you can take to establish credit before, during and after divorce.

 Protecting Your Credit

Unless you are paying cash, your credit will be the most important factor in your ability to buy a house.  Therefore, it is very important to protect your credit before, during and after divorce.  The best approach is to be proactive.

Here are some steps you can take today to protect your credit:

Transitioning the divorce process while planning for your future is multifaceted and requires a multipronged approach.  Certain divorce processes support a calmer, better planned transition than others.  To learn about your Missouri divorce process options contact one of our experienced St. Louis Collaborative Law professionals today.

Nicole Davis is a trained collaborative law professional.  She is experienced with helping couples achieve a good financial settlement.  To learn more about divorce finances give her a call or visit her website.

Phone: 314-272-0727

Website: https://www.reliancefinancialadvisor.com

Missouri Divorce and Child Support

Parents naturally are most concerned about their children at the time of divorce. One of the most important issues to be decided is how and in what amounts the children will be financially provided for.

Missouri Form 14

The Missouri Supreme Court has developed a way of calculating the amounts needed for support of children: it is called the Form 14 and it is readily available on the internet. The Form 14 child support amount is based on the gross (before tax deductions) income of each parent, the number of children of the marriage and various adjustments to income, including (among others) the cost of work-related child care and health insurance for the children.

Calculating Missouri Child Support

The Form 14 seems deceptively simple. It might appear that all one needs to do is plug in the gross income of each party, along with some other expenses like day care, and then out comes a child support number. Calculating child support is not, however, as easy as it might first appear. For instance:

These and many other questions can cause distress and conflict when trying to come up with the “right” amount of Form 14 child support. Fighting this issue in court can turn into a bitter and expensive battle with your spouse.

Collaborative Divorce and Child Support

In the collaborative divorce process you and your spouse can look at your individual circumstances and come to creative solutions that meet the interests of each of you and, most importantly, your children. With the help of your collaborative attorneys, your coach, and your financial professional, you and your spouse can discuss what your actual expenses are for your children and then come to decisions about how you want to pay those expenses. Maybe you will decide that no child support money will flow from one parent to the other parent and that you and your spouse will each pay certain expenses or certain percentages of all of the expenses for your child. Or, maybe you will decide that it is right that one parent pay child support to the other and agree on the correct amount for your family. Or, you might conclude that an agreed upon support amount will be paid less than 12 months per year.

The options available to you in collaborative divorce for making decisions about what is best for financial support of your children are limitless. Using the collaborative divorce process to analyze financial support of your children allows you, with the support and help of your collaborative team, to take a deeper dive into thinking about what your children need and what you and your spouse will be able to afford after the divorce. Once you are armed with the facts, you and your spouse can make informed decisions about how best to provide for your children in your unique family situation.

How to Have an Inexpensive Divorce

No one wants a long, expensive, and contentious divorce.  While sometimes unavoidable, there are many things that you and your soon-to-be former spouse can do to keep the process of the dissolution of your marriage as civil and efficient as possible.

7 Tips to Lower Your Divorce Costs

1. Understand Your “Process Options”

Most divorces end with an agreement not a trial, but the path to the agreement can look very different depending on the process you follow.  It’s important to choose a process that gives you and your spouse as much help as you need to reach an agreement, not more and not less. Do your homework so that you understand the differences between traditional litigation, a collaborative process, mediation and a simple non-contested divorce, before you dive in to the legal process and substantive negotiations. Choose a process that is most likely to work for your situation.  A meeting with your spouse and a mediator or divorce coach can help you to assess what path may work best for your family.

2. Be Organized

Regardless of the process you use, your lawyer will need detailed financial and other information from you throughout your case. Giving your lawyer the needed information in a timely and organized way will help your lawyer to be more efficient.  Follow up phone calls and the need for multiple edits will add to the cost of your legal bills.

3. Try not to Scare Each Other

Often during a divorce process, trust is low and anxiety is high.  Making unanticipated financial moves or taking unilateral action regarding your children can set off an adversarial snowball which can be difficult to stop.  If you and your spouse can manage finances wisely and treat each other fairly while your marriage is unwinding you will avoid expensive interventions by your lawyers and the court while you are making your final decisions.

4. Manage Your Emotions

Strong emotions are normal during a divorce process but they can get in the way of making good business and financial decisions.  Working with a therapist as you move through this transition can help you to keep your cool during a difficult time.

5. Don’t Sweat the Small Stuff

Disagreements over household goods, furnishings or personal items can take on emotional significance well beyond their financial value.  Talk with your mediator, lawyer or therapist about ways to approach division of these items in an orderly way without involving your lawyers in those negotiations.

6. Minimize New Relationships

Even though your marriage is ending, the introduction of a new person in your life before things are finalized can cause strong emotional reactions in your spouse.  This is can be even more so if children are introduced to new relationships.  Extra marital relationships can sometimes impact your financial settlement, but even when that is not the case, these relationships can make your divorce more contentious and expensive.  Waiting to move on until your marriage has ended will help the dissolution go more smoothly.

7. Say Yes When You Can

When dealing with your custody arrangements, if your spouse needs accommodation, whether to reschedule a weekend, or have a child for a special occasion, say yes if you can.  This will set the groundwork for a cooperative co-parenting relationship rather than starting things off on an adversarial track.

It takes two to keep things from escalating from a problem to be solved to a war to be waged, but if you follow the above steps you will increase the chances that the dissolution of your marriage, while tough territory under any circumstances, will be as civil and efficient as possible.

The Neutral Financial Professional in Divorce

A neutral financial professional helps clients identify financial goals and priorities, understand short and long-term implications of dividing marital property, and tax implications. This article briefly touches on the 3 most common finance professionals assisting in divorce - the accountant, financial planner, and certified divorce financial analyst.

In an ideal world every marriage would end with a happily ever after. However, statistics still show that 50% of marriages will end in divorce. The reasons why marriages end in divorce can vary widely. However, money remains one of the most common causes of divorce. In divorces where money isn't the main cause it often surfaces during the divorce process. Finances play a vital role in one’s sense of security and it is a valid concern during the divorce process. Many different finance professionals have assisted spouses during divorce.

3 Most Common Neutral Financial Professionals in Divorce

The Accountant

A CPA (Certified Public Accountant) has been certified to serve clients as an accounting expert. A CPA helps clients understand past and present-day financial information. They help clients understand the overall tax implications of the divorce settlement. Tax implications can arise when receiving spousal support or dividing a business, retirement accounts, or real estate.

The accountant is usually called upon to understand one specific aspect of the financial settlement. For example, equalizing capital gains tax when dividing investment securities. If an accountant possesses the proper training they can help with the valuation of a business as well. Accountants have also been called upon to find hidden assets in litigated divorces.

The Financial Planner

A CFP (Certified Financial Planner) has been certified to serve as a financial planner. A financial planner helps clients identify their future goals and develop a plan to achieve those goals. A CFP first seeks to understand their client’s short-term and long-term goals. They then gather information to understand their client’s current situation. Such information includes income, expenses, assets and liabilities. Assumptions such as Inflation, interest, retirement age and investment growth rate are then applied to the current situation to determine a future outcome.

The future outcome is compared to the client’s goals. The financial planner will recommend specific changes if their client is not going to achieve their future goals. For divorcing clients, the financial planner helps them understand the divorce’s impact on financial goals. Both the short and long-term implications of the marital property division are evaluated. Common marital assets include items such as a business, pension, retirement account, cash and the marital home. Common marital debts include items such as a mortgage, home equity line of credit, car loans, business debt, and retirement account loans.

The Certified Divorce Financial Analyst

The CDFA™ (Certified Divorce Financial Analyst) typically has a background in accounting or finance and has been certified to serve clients as a divorce, financial expert. A CDFA™ helps clients understand their past, present and future finances as it relates to the decisions made during divorce. A CDFA™ serves as a neutral financial professional in mediation and collaborative divorces. They can also serve as an advisor to one or both spouses during a kitchen table or litigated divorce. When a CDFA™ becomes part of the divorce team they help client(s), attorney(s), or mediator(s) evaluate the overall implications of the divorce, financial settlement.

A CDFA™ will begin by gathering all necessary financial and non-financial information. Such information includes the household budget, income, expenses, assets, liabilities, goals and priorities. Spouses are often unclear about how to begin this discussion and evaluate the marital property. A CDFA™ helps the spouses understand their current, overall financial picture and generates division scenarios that meet each person's goals and priorities. The advisor and spouses review each scenario's income, tax and retirement implications. The spouses then decide which options make the most sense for them and their family. Divorce financial analysts have been called upon to find hidden assets in litigated divorces. If they possess the proper training they have also been called upon to appraise a business.

Summary

The financial transition during divorce is personal, unique and often complex. Understanding the ramifications associated with each proposed financial settlement is imperative. These decisions carry a lifelong impact for each spouse. Since there is rarely an opportunity to modify the financial settlement it is very important to get it right the first time. If you would like more information about how a neutral financial professional can help you in your divorce, then please visit our collaborative financial professionals page.

Income Tax Considerations of Divorce

Timing of Divorce

The Internal Revenue Service defines how individuals file income tax returns based on their marital status as of December 31st.   While still married, the individuals can file a Married Filing Joint Return or each individual can file a Married Filing Separate Return.  Once divorced, the individuals will file separate returns as Single Individuals.

A divorce finalized in December versus January or vice versa could have a significant tax impact.   While tax implications should not be the only consideration taken into account to determine the timing of the divorce, a tax projection could allow for a planning opportunity to save a significant amount of taxes.

Tax forms and money

Children

Who gets to claim the children as a dependent is often an argument that may be simplified with some knowledge of their tax situation.  It is not uncommon for one or both of the parents to blindly want the tax deduction for the personal exemption of the children without knowledge of what it really means to them in terms of dollars.  The ability to claim the dependent as a personal exemption can be quantified so the divorcing parents can make informed discussions.

Along with the personal exemption, there are child tax credits and education tax credits tied to who claims the children.  Each of these credits are phased-out based on income so it further reinforces the need to evaluate the options so as to fully utilize the benefits.

Division of Property

The IRS states that transfers between spouses incident to divorce are generally not taxable.  As such, once an agreement on the division of assets is reached, the process of transferring the assets will generally not trigger any immediate income tax consequences.

While this seem pretty straight forward, it is important to note that not all assets are equal.  In the division of assets, you may receive property that has a tax consequence in the future.  An example of these types of assets would be retirement accounts, appreciated stock, stock options, etc.   These tax consequences should be evaluated and considered when deciding on how assets are to be divided.

Support Obligations

Child support is not taxable to the receiving spouse and it is not a deduction for the paying spouse.  Maintenance (Alimony) generally is taxable to the receiving spouse and it is a deduction for the paying spouse.

As maintenance is a taxable event, there is a difference between gross maintenance paid and net available after tax.  Without an understanding of these, unintended consequence could result.  A cash flow analysis showing the effect of taxes on maintenance can be used to make sure everyone is on the same page.

Fluctuating maintenance or a defined termination of maintenance can potentially trigger scrutiny by the IRS. It is necessary to evaluate any potential maintenance recapture or an IRS reclassification of maintenance to child support.  Both of these are used by the IRS to prevent the abuse of calling either a child support payment or a property division transfer as a maintenance payment to take advantage of the disparity of individual’s tax rates.