tax implications of a property transfer after divorce

Tax Implications of Property Transfers During a Divorce

by

Divorce is perhaps one of the most common legal processes individuals go through. Knowing that doesn’t make it any easier, especially when the decisions you make during divorce can affect your financial wellbeing for years or even decades to come.

The division of assets is a highly contentious part of many divorce cases. In addition to that, how and when assets are transferred can affect each party when tax time comes. This is why it’s important to work with an experienced divorce attorney and CPA to minimize the tax consequences of your divorce.

If you’re just getting started in the divorce process, it’s the right time to hire an attorney to protect your best interests. Reach out to an experienced divorce attorney in your area today.

Federal Tax Law

Under federal tax law, transfers between spouses and former spouses are generally not taxable. This is true as long as the transfer happens “incident to divorce.” This is fairly vague, as it allows couples to retain their right to tax-free transfers as long as they can prove that the transfer was related to the divorce.

This obviously covers property transferred immediately before and after a divorce, but it also provides protection in more complex circumstances. Generally, property transfers more than six years after a divorce are not considered related to the divorce. There are exceptions, though.

Consider, for example, a spouse who unintentionally failed to reveal owned stocks in their disclosure of assets. When they come to light years later and the ex-spouse becomes aware, they go to court to figure out a fair settlement. When the stock-owning spouse transfers half to their ex-spouse, it is considered “incident to divorce” even though the divorce occurred years earlier.

What About Gift Taxes?

Generally, transfers from one spouse to another during marriage or because of divorce are not held to gift tax obligations. These transfers are often considered non-taxable gifts if the transfer is related to a written divorce agreement, required under a court order, or in exchange for a waiver of support obligations.

Home Selling

What happens when no one wants the marital home? You have to sell it and split the proceeds fairly. Depending on the price of your home, you may be subject to a capital gains tax. When you sell the house, each of you can receive up to $250,000 from the sale of the house before the capital gains tax comes into play—as long as you have lived there for at least two of the previous five years.

If one party wants to keep the home and buys out the other party, you do not have to worry about the capital gains tax. In this case, the buyout is related to a divorce.

Income-Producing Assets

While the transfer of income-producing assets may not lead to immediate changes in taxes, it can affect both parties for years to come. When an income-producing asset is transferred, the tax obligations of that asset go with it. This ensures that the person receiving the money from the asset is also required to pay the taxes that come with it.

Income producing asset transfers can lead to issues if the person receiving the asset has never handled their own taxes before or has not planned for the tax consequences of an income-producing asset. This is why it’s recommended that divorcing couples each hire CPAs to handle their post-divorce finances and taxation changes.

Considering State Laws

On top of the complexities of federal tax law, remember that state laws vary. What is not taxable under federal law could still be taxable under state law, hitting one party with a surprise bill at the end of the year.

This highlights the importance of working with an experienced divorce attorney throughout the dissolution process. These kinds of financial decisions can have profound impacts on your future, and you need experienced professionals who can help you make the right decision for you. Your attorney may recommend working with a CPA to plan ahead for your taxes.

While divorce is never an easy decision to make, you can make it easier on yourself with the help of an experienced attorney. Contact a reliable and compassionate divorce attorney in your area today.

What is The Difference Between Fault and No-Fault Divorce?

What is The Difference Between Fault and No-Fault Divorce?

by

There are significant differences between a fault divorce and a no-fault divorce. Divorce laws vary a lot from state to state. In some of the states, married couples can seek only fault-based divorces, while many recognize divorce on both fault and no-fault grounds.

Where you live decides the laws that might apply in your case. It always helps to consult an attorney to understand the laws specific to your state. Let us study the differences and explore the choices feasible for your situation.

No-Fault Divorce

In a no-fault divorce, the spouse filing for divorce does not need to establish the other spouse’s wrongdoing as a basis for which to dissolve the marriage. Often, irreparable breakdown and irreconcilable differences are the stated grounds for a no-fault divorce.

An objection by a spouse to another’s no-fault divorce petition runs the risk of being counterproductive. The court can view the objection itself as a sign of irreconcilable differences between the two.

The laws in all the states recognize no-fault divorce. However, laws in some states necessitate a minimum period of separation before either of the spouses can file for one.

Fault Divorce

Most of the states do not ratify fault-based divorce anymore. Even in the states that do, fault divorce is not very common. In fault divorce, a spouse can base the divorce petition on the grounds of the other spouse’s wrongful actions.

Verdicts in a fault-based divorce are typically costlier and more difficult to obtain than in the no-fault divorce. But in certain states, some of the grounds for a fault divorce may appear to favor one spouse more than the other. A case in point is the denial of alimony on the grounds of adultery in some states.

Some of the grounds for a fault divorce are:

  • Adultery
  • Pregnancy, hidden at the time of marriage
  • Abandonment (different states specify different lengths of time)
  • Abuse (physical, emotional, or mental cruelty)
  • Prison Term (different states specify different lengths of time)
  • Insanity
  • Impotence
  • Substance abuse
  • Infection with a sexually transmitted disease
  • Marriage between people too closely related (in some states grounds for annulment)

Some states require a separation period of up to two years in no-fault divorce. But there is no such stipulation for separation while filing the fault-based divorce petition.

The spouse that files for a fault-based divorce stands a chance to gain a larger portion of marital property or bigger benefits in support if they can establish wrongdoing, though this is not always the case. For some people, these aspects make fault-based divorce more appealing than no-fault divorce.

Common Legal Defenses against Fault-Based Divorce

A spouse can either claim that the accusations against them in the fault-based divorce petition are false or take recourse in mounting a legal defense. Each state’s laws define the available legal defenses. Here is a list of the commonly available divorce defenses:

Connivance

 Connivance is a defense with limited use only against allegations of adultery in a divorce case. Connivance occurs when one spouse spurs the other or creates an opportunity for them to participate in adultery but later files a divorce on the grounds of adultery.

The spouse who indulges in an affair encouraged by the other spouse can use connivance as a legal defense against the allegations.

Condonation

 Condonation is also a legal defense used mostly against allegations of adultery in fault-based divorce. Condonation claims that one spouse knew that the other spouse was in an adulterous relationship but still consented to the affair or forgave it.  After forgiving such conduct, they resumed the marital relationship.

A spouse condoning such acts cannot later seek divorce on the grounds of adultery. But on the other hand, the spouse using condonation as a legal defense must prove that the other spouse knew about and forgave the wrongful act and continued with the marriage.

Recrimination 

Recrimination is a defense where the defending spouse uses counter-allegations of similar nature against the complaining spouse. Typically, one spouse invokes this defense when the other spouse seeking a divorce may also be guilty of similar wrongful acts such as cruelty, adultery, or desertion.

Provocation

Provocation occurs when the actions of one spouse incite the other into committing a wrongful act. Abuse by one spouse leading to abandonment by the other can form the basis of such legal defense.

Collusion 

Collusion occurs where the couple agrees to fabricate the grounds to obtain a divorce. It could happen in cases where couples do not like the thought of waiting for a stipulated time in no-fault divorce. If one of the spouses changes their mind and files for fault divorce, collusion becomes a legal defense.

The Principle of Comparative Rectitude in Fault-Based Divorces

In cases where both the spouses make allegations that are justifiable grounds for a divorce, the courts apply the principle of comparative rectitude. The courts, under this principle, award divorce to the petitioner with less serious fault.

The principle of comparative rectitude redresses the quandary of courts accepting neither party’s divorce petition if both were at fault. The court, under this principle, might award certain rights like the right to remarry, to the spouse with lesser fault while denying those rights to the other spouse. However, courts rarely grant this type of divorce, also known as least-fault divorce.

Key Takeaway

With the elimination of fault as a ground for divorce in most states, no-fault divorce is by far the most common way to dissolve a marriage in today’s society. Courts, while recognizing their duty to uphold the sanctity of the institution of marriage, also acknowledge the futility of coercing two individuals to remain bound in matrimony against their choice.

Following Alabama Parenting Agreements During a Summer with COVID-19

Following Alabama Parenting Agreements During a Summer with COVID-19

by

People are always excited about the summer season, which usually offers more opportunities for the family to spend time together. Families utilize this time to plan vacations, and children can enjoy outdoor activities with their friends. For couples who are separated and have kids in common, this is often a time to plan and create a mutually agreeable parenting schedule.

However, due to the COVID-19 pandemic, things are different for the summer of 2020 with self-quarantine, self-distancing, and lockdown measures. Consequently, several families are finding it challenging to co-parent while ensuring that their family remains safe. The summer may present unique challenges, but it is still possible for you and your kids to enjoy your time together in Alabama.

Be Cooperative and Accommodating

At present, couples in Alabama face a difficult situation in co-parenting due to the outbreak. Still, parenting access schedules and child custody orders have been and remain enforced throughout the state.

Most parents want to follow custody orders, but they also have concerns for their children’s and their own health, if not properly following the Centers for Disease Control and Prevention’s (CDC’s) guidelines for social distancing.

While both parents may seek equal or more time with their kids during summer, it is crucial to remain cooperative and accommodating. Parents should work in tandem with each other to make decisions that prioritize their child’s safety as well as their own health. To manage this unprecedented period, it is necessary to establish temporary arrangements.

Talk to Children

It is vital to communicate with your children during this unusual time. They likely want to hang out with their friends outside or visit their other parent and do not comprehend why they aren’t able to do so. You must communicate the reasons why this summer is different and offer alternatives to things that they want to do but cannot because of the circumstances.

If you have the primary custody of the child, ensure that the child remains in contact with the other parent as well. You can ask them to draw pictures, write letters, video chat, or speak over the phone.

These situations can be understandably sensitive and frustrating. However, fighting or arguing at this time will not do any good. It is best to consult an experienced child custody lawyer if you need help with a parenting plan. A qualified lawyer can recommend a practical recommendation for your unique circumstances.

Use your Creativity

Children are excited about the summer break all year. Their schedule might be limited in the summer of 2020, but there are still many enjoyable activities available to them within your home in Alabama.

Present your children with some creative recreational options. You may consider taking your kids for walks for outdoor activities, letting them ride their bicycles, and even setting up an overnight campground in your own backyard.

Technology has, fortunately, been a critical component in maintaining relationships during social distancing and lockdowns. Your child may be missing their friends, and you can have them video chat and play online games with their friends using an iPad, a computer, or another electronic device.

New developments in COVID-19 news happen every day. Therefore, ensure that you remain updated as businesses open their doors and other activities restart in Alabama.

Prioritizing Safety and Health

In these uncertain times, most parents just want to ensure their child’s safety and health during this challenging period. Noncustodial parents will likely have valid concerns regarding their child’s safety and health in the backdrop on the coronavirus outbreak. They may question the custodial parent’s commitment to maintaining social distancing, following hygiene measures, and ensuring the safety of the child.

In these times, the noncustodial parent’s lack of control becomes a serious issue. The custodial parent must continually reassure the other parent that the best interests of the child are of their utmost concern at all times.

Increase Digital Communication

Any Alabama family law attorney would recommend that co-parents adapt to the new temporary situation and remain flexible. They should set up virtual meetings on Skype, Zoom, and FaceTime. This can help the noncustodial parent remain in touch with the child as well as offer the child a chance to interact with the other parent during this stressful time.

In case the custodial parent is a medical care worker and is going through increased work pressure while being exposed to greater risks of infection, they might consider allowing their child to be in the care of the other parent until the circumstances improve.

Legal Assistance for Child Custody Determination

Various factors must be weighed individually and together to determine child custody and visitation rights during divorce proceedings in Alabama. During times like these, it makes sense to get in touch with an experienced family law attorney to guide you through this process.