Federal Income Taxes and Family LawDivorce or Separation

Filing Status•Marital Status

▫Unmarried▫Married

•Married Persons▫Can file jointly or separately.▫Separated or divorced in current tax year

•Exception▫If you live apart from your spouse, under

certain circumstances, you may be considered unmarried and can file as head of household.

Married Filing Jointly• Both must include all income, exemptions,

deduction, and credits on that return.• Signing a Joint Return

▫Both must sign or it will not be considered filing jointly

• Joint and Individual Liability▫Both may be held responsible for penalties

• Divorced Taxpayers▫You are jointly and individually responsible for

any tax, interest, and penalties due on a joint return for a tax year ending before your divorce.

Joint Return/Joint Liability•Three types of relief under IRC §6015.

1. Innocent Spouse Relief which applies to all joint filers.

2. Separation of liability Applies to Joint filers who are divorced,

widowed, legally separated, or who have not lived together for the 12 months ending on the date on which election of this relief is filed.

3. Equitable Relief Applies to all joint filers who do not qualify for

innocent spouse relief or separation of liability.

Injured Spouse• You can get a refund of your share of the

overpayment if you qualify as an injured spouse.• You are an injured spouse if you file a joint

return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse’s past-due debts.

• To be considered an injured spouse, you must:1. Have made and reported tax payments, or

claimed a refundable tax credit, and2. Not be legally obligated to pay the past-due

amount.

Married Filing Separately

•If you and your spouse file separate returns, you should each report only:▫Your own income, exemptions, deductions,

and credits on your individual return.▫You can file a separate return even if only

one of your had income.

Married Filing Separately

•Separate Liability.•Itemized deductions or standard.•Separate returns may give you a higher

tax.

Changing Your Filing Status

•Joint Return after Separate Returns•Separate Returns after Joint Return

Head of Household

•Requirements. ▫You are unmarried or “considered

unmarried” on the last day of the year.▫You paid more than half the cost of keeping

up a home for the year.▫A “qualifying person” lived with you in the

home for more than half the year (except for temporary absences, such as school).

Head of Household

•You are considered unmarried on the last day of the tax year if you meet the following tests.▫You file a separate return. ▫You paid more than half the cost of keeping

up your home for the tax year.

Head of Household▫Your spouse did not live in your home

during the last 6 months of the tax year.▫Your home was the main home of your

child, stepchild, or foster child for more than half the year.

▫You must be able to claim an exemption for the child. However, you meet this test if you cannot

claim the exemption only because the non-custodial parent can claim the child using the special rule for divorced or separated parents.

Requirements

Head of Household•You are keeping up a home only if you pay

more than half the cost of its upkeep for the year.

•This includes:▫Rent, mortgage interest, real estate taxes,

insurance on the home, repairs, utilities, and food eaten in the home.

•This DOES NOT include:▫The cost of clothing, education, medical

treatment, vacations, life insurance, or transportation for any member of the household.

Keeping Up a Home

Head of Household

•To be a taxpayer’s qualifying child, a person must satisfy four tests:1. Relationship2. Residence3. Age 4. Support

Qualifying Child Definition

Head of Household

•The noncustodial parent cannot claim the child for: ▫head of household filing status, ▫the credit for child and dependent care

expenses,▫The exclusion for dependent care benefits,▫And the earned income credit.

•Only the custodial parent can claim the child as a qualifying child for these four tax benefits.

Special Rule for Divorced/Separated Parents

Earned Income Credit

•You must:1. Have a valid Social Security Number (if

joint, spouse must have a valid Social Security number)

2. Have earned income from employment or self-employment

3. Have a filing status other than married, filing separately.

4. Be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or a resident alien and filing a joint return

Qualifications

Earned Income Credit

• You must:5. Not be a qualifying child of another person (if

joint, your spouse also cannot be a qualifying person)

6. Not have investment income over a certain amount

7. Not file Form 2555 or 2555-EZ (related to foreign earned income), and

8. Have a qualifying child or: Be age 25 but under 65 at the end of the year Living in the U.S. for more than half the year, and Not qualify as a dependent of another person

Qualifications

Earned Income Credit

•NEW for Tax Year 2009, is the additional EITC and income thresholds for a Third Qualifying Child and Changes to the Uniform Definition of a child.

•The change to the Definition of a qualifying child adds two new rules:▫The child must:

Be younger than then person claiming the child.

Not have filed a joint return other than to claim a refund.

Tax Year 2009

Earned Income Credit

•Earned Income and adjusted gross income (AGI) must each be less than:▫$43,279 ($48,279 married filing jointly)

with three or more qualifying children.▫$40,295 ($45,295 married filing jointly)

with two or more qualifying children.▫$35,463 ($40,463 married filing jointly)

with one qualifying child.▫$13,440 ($18,440 married filing jointly)

with no qualifying children.

Tax Year 2009

Earned Income Credit

• Investment income must be $3,100 or less for the year.

•The maximum of Advance EITC workers can receive from their employers is $1,826.

•Tax Year 2009 maximum credit:▫$5,657 with three or more qualifying children.▫$5,028 with two qualifying children.▫$3,043 with one qualifying child.▫$457 with no qualifying children.

Tax Year 2009

Dependency Exemption

•The term dependent means:▫A qualifying child or a qualifying relative

Dependency Exemption

• A child will be treated as the qualifying child or relative of his or her noncustodial parent if ALL of the following apply.▫Parents

Are divorced or legally separated under divorce decree or separate maintenance, separated under written separation agreement, or lived apart during the last 6 months of the year.

▫Child received over half of his or her support for the year from the parents

▫Child is custody of one or both parents for more than half of the year.

▫Custodial parent signs written declaration Form 8332

Special Rule for Divorced or Separated Parents

Child Tax Credit

•Maximum amount you can claim is $1,000 per qualifying child.

•Only the parent claiming a dependency exemption for the child can qualify for the child tax credit

Child And Dependent Care Credit1. Care must be for one or more qualifying

persons2. You (and your spouse if married) must

have earned income during the year3. You must pay child and dependent care

expenses so you can work or look for work.

Requirements

Child and Dependent Care Expenses

•Even if you cannot claim your child as a dependent, he or she is treated as a qualifying person if:▫Child was in the custody of one or both

parents for more than half the year, and▫You were the child’s custodial parent

(parent with whom the child lived for the greater part of 2009).

Divorced or Separated Parents

Child and Dependent Care Expenses

•***The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents.

Divorced or Separated Parents

Child Support

•Is not deductible to the Payer

•Not includible as income to the Payee

Alimony

•Generally Deductible to the Payer

•Includible as income to the PayeeCan be designated as “not alimony” by the parties

Alimony Requirements

•Separate Return•Payment in Cash•Not designated as “not alimony”•Spouses not members of same household

at the time the payments are made•No obligation to make payments after

death of Payee•Payment is not child support

Payment in Cash

•Cannot be services or use of payer’s property

•Cannot be Promissory Note to pay•Can be payments to third party

▫In lieu of payments directly to payee▫Written request by payee received before

return filed

Not Designated as “not Alimony”•Written statement•Signed by both parties•References previous agreement (ie Final

Judgment or support order) •Attached to the return when filed

Cannot be members of the same household•Sharing the same home, even if separate

sleeping quarters

•Only applies if you there is a divorce decree or written separation agreement (legal separation)

Not obligated to make payments after death of payee•Must be part of decree or by state law

▫Florida terminates alimony at death or re-marriage

Not Child Support

•Specifically designated as child support if:▫Payment reduced on the happening of a

contingency relating to the child or▫Can be clearly associated with the

contingency

Child Support

•Contingency relating to the child include the child:▫Becoming employed▫Dying▫Leaving the household▫Leaving school▫Marrying▫Reaching a specified age or income level

Lump Sum Alimony Payments

•Cash or Noncash property settlements, whether in a lump sum or installments, do not qualify as alimony.

•Voluntary payments (i.e., payments not required by a divorce decree or separation instrument) do not qualify as alimony.

Recapture of Alimony

•Alimony payments decrease or terminate during first 3 calendar years

•May Require inclusion of previously deducted alimony payments

QDROs

•If paid to a child or other dependent (not deductible by plan participant)

•If paid to the former spouse, includible in gross income of former spouse▫Could possibly roll over the amount

IRAs

•Contributions to former spouse’s IRA▫Not deductible in year of divorce

•Transfers of all or part of IRA as a result of divorce decree, not considered a taxable event

Property Settlements

•Generally, not taxable event (no gain or loss) if incident to divorce

•Exceptions are:▫Spouse is nonresident alien▫Certain transfers in trust▫Certain stock redemptions

Incident to Divorce

•Occurs within 1 year of end of marriage or

•Related to the ending of the marriage▫Made under the original or modified Final

Judgment and▫Occurs within 6 years after the date the

marriage ends

Sale of Jointly-Owned Property

•Must report your share of gain or loss•Remember exclusion for primary

residence▫250,000 individually, 500,000 jointly

Gift Tax

•Possible consequences if the transfer does not qualify under the exception for transfer between spouses or former spouses