What is the Divorce Shield Plan and what are the common tax problems associated with divorce?

Sale of Residence                                                                

Tax law defines a principal residence as the home where
you’ve lived for any two of the last five years. If you sell
your principal residence, you are allowed to exclude up to
$250,000 of the gain from taxable income if you’re single,
$500,000 for a married couple. The one risk that’s still
real for many taxpayers from capital gains on the sale of
a home is the risk that you might wait too long after you
move out of the house before your interest in it gets sold.
This problem can be resolved by selling the home within
three years of the date of separation. Alternatively, the
spouse who has moved out of the home can transfer their
interest in the home to the other spouse as a part of the
divorce proceedings.

Estimated Tax Payments/Withholding
If you are self-employed, you probably make quarterly
estimated payments to cover your tax liability. Once you
have determined that you and your spouse will be filing
separate returns, both should insure that any estimated
payments made are applied only to the intended spouse.
Tax withholding from paychecks should also be adjusted
at this time as a divorce typically changes the tax liability
of both spouses.

Retirement Plans
Divorce can have significant impact on retirement plans.
Be aware that as a part of the divorce proceedings, one
spouse may be forced to distribute some of their retirement
savings to the other spouse. This is referred to a QDRO
(Qualified Domestic Relations Order) distribution. These
distributions can be taxable or non-taxable, depending on
how they are structured and who receives the distribution.
Unfortunately, attorney costs related to a divorce are
typically not deductible. However, it may be possible to
structure some of the attorney fees in a way to make them
deductible. Deductible costs may include:
1. Fees for tax planning.
2. Fees for obtaining taxable income.
3. Fees for securing interest in qualified retirement plans.
Consult with your attorney regarding ways to have them
structure their bills to maximize the charges for the above
services.
Couples who have a business or rental properties may be
able to deduct legal fees related to splitting these assets in
a divorce, or they may be able to allocate these fees to the
cost of certain assets so they can be expensed or used to
reduce gains at a later date.
Please consult a tax professional during the divorce
process. Not only will it make the divorce process less
stressful, the price of their advice will likely translate into
saving you money and time later. Nobody ever plans
on being divorced in their lifetime. But the reality is that
divorce does happen. If you’re involved in or considering
divorce proceedings, one of the first and most important
steps you can take for your own financial well being is to
work with a tax professional throughout the process.
These Tax considerations for divorce are not meant to be a
complete list. If these considerations, together with all of
the other considerations mentioned in this article, seem a
bit overwhelming, the good news is that you do not have
to handle these changes alone. There are Divorce Shield
Advocates, such as Tax Professionals in your local area,
who are trained to help guide you through this crucial
process. Tax Professionals, part of the Divorce Shield
Advocate Network, are happy to assist you with expert
insight on all of your tax questions and preparation needs.
These elite individuals are dedicated to serving you during
this difficult time of divorce. With Divorce Shield, your
access to professionals is unlike anything else available
in the United States. With help from your network of
advocates, the advice you receive can be invaluable. To
give you peace of mind, they can help you with all of
your Tax needs, and help you meet your goals no matter
what the future holds. By working with Divorce Shield’s
network of advocates and completing your FREE Divorce
Shield Plan, you can have the Clarity, Control, and
Confidence to make wise decisions that will benefit you
for years to come.