As we now approach the deadline for filing our 2014 federal income tax return, many divorced parents are asking this question, “Which parent may legally claim their children on their tax return”? This question has become complicated with the rise in fathers’ rights, expansion in non-custodial parents visitation periods, and advance parenting schedules allowing children to spend quality if not equal time with both parents throughout the year.
In the past the Internal Revenue Code provided that the custodial parent was allowed to claim the minor children on his/her federal income tax return. Mom was usually the custodial parent and Dad usually had the children every other weekend.
The Internal Revenue Code states that the parent with whom the child lived with for the greater number of nights during the year is entitled to claim the dependency exemption.
If during or following a divorce in final judgment, the two divorcing parents agree that one parent shall claim the child as a dependent in odd numbered years and the other parent in even numbered years, or if the divorcing parents have more than one child, one parent shall claim some children, while the other parent shall claim the other children, this agreement in your final divorce decree will be honored by the IRS.
If your divorce was final before 2008, just attach the final divorce decree to your tax return. If your divorce was final after 2008, your ex-spouse must fill out IRS form 8332 which provides the name of your children that you can claim on your federal income tax return.
I you are divorced in 2014 and have questions please contact your tax adviser or go to the website http://www.irs.gov/Forms-&-Pubs for more information.
Preparing for a Texas Divorce – Part 1: Assets
Preparing for a divorce is painful no matter the circumstance. Before you get into the tangle of the divorce process, you can reduce the expense, stress and conflict many people face by making sure you are prepared. Planning ahead allows you to make sound decisions and start preparing for your life post-divorce, and may also help you avoid post-divorce pitfalls. Below is a list of items you may want to gather before counseling with an attorney.
- A Listing of all Real Property, address and location, including (include time-shares and vacation properties):
- Deeds of Trust
- Legal Description
- Mortgage Companies (Name, Address, Telephone Number, Account Number, Balance of Note, Monthly Payments)
- Current fair market value
- Mineral Interests (include any property in which you own the mineral estate, separate and apart from the surface estate, such as oil and gas leases; also include royalty interests, work interests, and producing and non-producing oil and gas wells.
- Name of mineral interest
- Type of interest
- County of location
- Legal description
- Name of producer/operator
- Current market value
- Cash and accounts with financial institutions (checking, savings, commercial bank accounts, credit union funds, IRA’s, CD’s, 401K’s, pension plans and any other form of retirement accounts):
- Name of institution, address and telephone number
- Amount in institution on date of marriage
- Amount in institution currently
- Account Number
- Names on Account
- Publicly traded stock, bonds and other securities (include securities not in a brokerage, mutual fund, or retirement account):
- Number of shares
- Type of securities
- Certificate numbers
- In possession of
- Name of exchange which listed
- Pledged as collateral?
- Date acquired
- Tax basis
- Current market value
- If stock (date option granted, number of shares and value per share)
- Closely held business interests:
- Name of business
- Type of business
- % of ownership
- Number of shares owned if applicable
- Value of shares
- Balance of accounts receivables
- Cash flow reports
- Balance of liabilities
- List of company assets
- Retirement Benefits
- Exact name of plan
- Address of plan administrator
- Starting date of contributions
- Amount in account on date of marriage
- Amount currently in account
- Balance of any loan against plan
- Insurance and Annuities
- Name of insurance company
- Policy Number
- Type of insurance (whole/term/universal)
- Amount of monthly premiums
- Date of Issue
- Face amount
- Cash surrender value
- Current surrender value
- Designated beneficiary
- Motor Vehicles (including mobile homes, boats, trailers, motorcycles, recreational vehicles; exclude company owned)
- Name on title
- VIN Number
- Fair Market Value
- Name of creditor (if any), address and telephone
- Persons listed on debt
- Account number
- Balance of any loan and monthly payment
- Net Equity in vehicle
- Money owed by spouse (including any expected federal or state income tax refund but not including receivables connected with any business)
10. Household furniture, furnishings and Fixtures
11. Electronics and computers
12. Antiques, artwork and collectibles (including works of art, paintings, tapestry, rugs, crystal, coin or stamp collections)
13. Miscellaneous sporting goods and firearms
15. Animals and livestock
16. Farming equipment
17. Club Memberships
18. Travel Award Benefits (including frequent flyer miles)
19. Safe deposit box items
20. Burial plots
21. Items in any storage facility
22. A listing of separate property (property prior to marriage, family heir looms, property gifted)
- 23. Listing of all liabilities (including mortgages, credit card debt, personal loans, automobile loans, etc.):
1. Name of entity, address and telephone number
2. Account number
3. Amount owed
4. Monthly payment
5. Property securing payment (if any)
6. Persons listed as liable for debt
So you have now decided to divorce. You know it will be painful & scary, but you believe the time is right to have a single life. Financial vulnerability and risks are inevitable.
Every year, approximately three million men and women head down the emotional and financial path of divorce. Following a divorce the cost is usually 25-50% more to maintain your pre-divorce lifestyle. A single household becomes twice as expensive as each spouse losses the benefit of the other spouses income. Economic discrimination due to gender gaps place additional financial burdens on women. A woman’s standard of living may drop 27% while a man’s standard of living may increase 10%!
Now start with the financial basics in surviving your divorce! What are the basics?
A secure place to live
Create little or no debt
Protect retirement assets or income
Use of liquid money or assets
The most important of these basics is Liquid money! You will need money to find a place to live and hire an attorney. You will also need money to pay your expenses during your divorce. Liquidity will definitely come in handy and enhance your position in the proceedings.
What about Debts? If possible pay off your debts now. The uses of savings or assets you can liquidate are the cleanest methods. Many divorced people find themselves responsible for their EX’s portion of debt since the exiting spouse refuses to pay. Legally, you may be responsible if your ex-spouse does not pay. Try to start your new life free of debt and with a new sense of self confidence!
What about Cash Issues and Retirement Assets in a Divorce? If you and your spouse have retirement savings, each of you will probably be entitled to a one-half share or a portion based on a fixed ration of the number of years married and number of years of investing. This money could be kept for retirement or used to repay other current expenses or debts. Make sure you examine prospective tax treatment to avoid the 10% penalty on early withdrawal by the IRS.
Some tax questions to know about:
Are spousal maintenance payments tax deductible?
Who will be able to claim Head of Household status?
Who gets the tax exemption for the kids?
Is child support non-deductible?
Which Attorney fees are tax deductible?
Always remember to “Look at the big picture”. Keep your focus on finances and parenting. If you need help from smart professions, as your attorney, accountant, or mental-health professional, get it now! They will help you and your family with focus, objectivity and a long-term vision that is very difficult for you during this tumultuous time in your life. Now you need to be able to articulate you needs and goals for the future.
Do not forget! This time too shall pass and you may be, with planning, better than ever in the future!
Under the Texas Family Code, a spouses separate property consists of 1) the property owned or claimed by the spouse before marriage; 2) the property acquired by the spouse during marriage by gift, devise, or descent, and 3) the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
The terms “owned and claimed” as used in the Texas Family Code mean that where the right to the property accrued before marriage, the property would be separate. Inception of title occurs when a party first has a right of claim to the property by virtue of which title is finally vested. The existence or nonexistence of the marriage at the time of incipiency of the right of which title finally vests determines whether property is community or separate. Inception of title occurs when a party first has a right of claim to the property.
Under Texas Constitution, Art. XVI, Section 15, separate property is defined as all property, both real and personal, of a spouse owned or claimed before marriage, and that acquired afterward by gift, devise or descent, shall be the separate property of that spouse; and laws shall be passed more clearly defining the rights of the spouses, in relation to separate and community property; provided that persons about to marry and spouses, without the intention to defraud pre-existing creditors, may by written instrument from time to time partition between themselves all or part of their property, then existing or to be acquired, or exchange between themselves the community interest of one spouse or future spouse in any property for the community interest of the other spouse or future spouse in other community property then existing or to be acquired, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property and estate of such spouse or future spouse; spouses may also from time to time, by written instrument, agree between themselves that the income or property from all or part of the separate property then owned or which thereafter might be acquired by only one of them, shall be the separate property of that spouse; if one spouse makes a gift of property to the other that gift is presumed to include all income or property which might arise from that gift of property; and spouses may agree in writing that all or part of the separate property owned by either or both of them shall be the spouses’ community property.
In 1917 the Legislature defined and income from separate property to be the separate property of the owner spouse. In Arnold v. Leonard, 114 Tex. 535,273 S.W. 799 (1925), the Supreme Court held that the Legislature did not have the constitutional authority to characterize the income from separate property as the owner’s separate property. The court explained that the Legislature’s authority was limited to enacting laws regulating the management and liability of marital property, not its separate or community character. This decision strengthened the constitutional principal that the Legislature may not define what is community and separate property in a manner inconsistent with Article 16, Section 15 of the Texas Constitution.
There are numerous means by which separate property may be acquired in defiance of Article 16, Section 15, a partial list includes mutations of separate property, increases in value of separate land and personality, recovery for personal injury not measured by loss of earning power, improvements of separate land with an unascertainable amount of community funds, and United States Securities purchased with community funds.
Although such property may undergo changes or mutations, as long as it is traced and properly identified it will remain separate property.
The Texas Family Code defines community property as follows: “community property consists of the property, other than separate property, acquired by either spouse during marriage.”
Texas Family Code, Section 3.003 states that all property possessed by either spouse during or at the dissolution of the marriage is presumed to be community property and that the degree of proof necessary to establish that property is separate property, rather than community property, is clear and convincing evidence. Clear and convincing evidence is defined as that measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established. If property cannot be proved to be separate property, then it is deemed to be community property.
The Texas Family Code, Section 7.002, deals with quasi-community property and requires a court divide property wherever the property is situated, if 1) the property was acquired by either spouse while domiciled in another state and the property would have been community property if the spouse who acquired the property had been domiciled in Texas at the time of acquisition; or 2) property was acquired by either spouse in exchange for real or personal property and that property would have been community property if the spouse who acquired the property so exchanged had been domiciled in Texas at the time of the acquisition.
Texas HB 1846: Suspension or denial of issuance or renewal of a license for failure to pay child support
The court or Title IV-D agency may stay an order suspending a license conditioned on the individual’s compliance with:
- A reasonable repayment schedule that is incorporated in the order
- The requirements of a reissued and delivered subpoena
- The requirements of any court order pertaining to the possession of or access to a child
The court or Title IV-D agency may not stay an order unless the individual makes an immediate partial payment in an amount specified by the court or Title IV-D agency. The amount specified may not be less than $200.
A licensing authority that receives the information shall refuse to accept an application for issuance of a license to the obligor or renewal of an existing license of the obligor until the authority is notified by the child support agency that the obligor has:
- Paid all child support arrearages
- Made an immediate payment of not less than $200 toward child support arrearages owed and established with the agency a satisfactory repayment schedule for the remainder or is in compliance with a court order for payment of the arrearages
- Been granted an exemption as part of a court supervised plan to improve the obligor’s earnings and child support payment
- Successfully contested the denial of issuance or renewal of license
An order suspending a license rendered before the effective date of this Act is governed by the law in effect on the date the order was rendered.
Texas HB 1846 takes effect September 1, 2013