HEAD OF HOUSEHOLD
Generally speaking, the most advantageous way to file a tax return is married jointly, and the least advantageous is married filing separately. Somewhat better than the latter is single, and somewhat better than single but not quite as good as married jointly is filing as head of household. As a general comment, when going through a divorce, you are either going to file jointly (as you typically have over the years) or you are going to be filing married filing separately. However, if there are dependent children, then there is the possibility of filing as head of household – but that is only available to the custodial parent. Who is entitled to take the exemptions is not relevant to the issue of who is entitled to claim head of household. Thus, in a stereotypical situation where the children stay with the wife, she may be entitled to file head of household, but the husband would not, and would probably have to file married filing separately.
Tuesday, November 30, 2010
Tuesday, November 23, 2010
Anecdote of the Week
CAIN & ABEL
What most of us in the forensic accounting field will tell you is that a business breakup among family – a shareholder’s suit let’s say between brothers – can make a bitter divorce battle over a business seem like a discussion at a knitting circle. In dealing with a shareholder suit among two brothers who owned a supply business, our client bitterly complained that his brother was a thief (the words he used were somewhat more colorful), and was stealing from the business. Figuring that in-your-face candor was the best route to take, we suggested to our client that his brother was doing nothing different than he was – they were both stealing from the business, they were both stealing from each other. As only a guiltless thief can say with a straight face, our client responded “Yes, that’s true, but he’s stealing more than I am.” These two brothers, who by the way were no youngsters – they were both in their 70s – were so angry with each other, and so irrational, that during the litigation, when their mother died, they couldn’t agree on anything having to do with the funeral or the mourning period
What most of us in the forensic accounting field will tell you is that a business breakup among family – a shareholder’s suit let’s say between brothers – can make a bitter divorce battle over a business seem like a discussion at a knitting circle. In dealing with a shareholder suit among two brothers who owned a supply business, our client bitterly complained that his brother was a thief (the words he used were somewhat more colorful), and was stealing from the business. Figuring that in-your-face candor was the best route to take, we suggested to our client that his brother was doing nothing different than he was – they were both stealing from the business, they were both stealing from each other. As only a guiltless thief can say with a straight face, our client responded “Yes, that’s true, but he’s stealing more than I am.” These two brothers, who by the way were no youngsters – they were both in their 70s – were so angry with each other, and so irrational, that during the litigation, when their mother died, they couldn’t agree on anything having to do with the funeral or the mourning period
Friday, November 19, 2010
Kal's Kweries**
KWERY:
I’ve been married for 20 years, and have my own business. I had the business before we got married, but I’m concerned that my wife in our divorce is going to get half of my business. Is my concern reasonable?
RESPONSE:
Generally speaking, for a business that existed prior to a marriage, your wife is only entitled to a share of the increase in value (if any) during the marriage. That is under the assumption that the interest in the business is an active asset (generally one in which you make a significant contribution). The percentage that your wife will get will vary dramatically based on jurisdictions as well as whether or not she contributed in any way to that business.
I’ve been married for 20 years, and have my own business. I had the business before we got married, but I’m concerned that my wife in our divorce is going to get half of my business. Is my concern reasonable?
RESPONSE:
Generally speaking, for a business that existed prior to a marriage, your wife is only entitled to a share of the increase in value (if any) during the marriage. That is under the assumption that the interest in the business is an active asset (generally one in which you make a significant contribution). The percentage that your wife will get will vary dramatically based on jurisdictions as well as whether or not she contributed in any way to that business.
Monday, November 15, 2010
Tax Tip of the Week*
CHILD SUPPORT VERSUS ALIMONY
Alimony is usually tax deductible to the one making the payments and taxable to the one receiving them; whereas child support is neither deductible or taxable. There can be opportunities to play off one against the other, and benefit one or both parties. It is important that issue be recognized, and calculations done to determine what is best in your specific situation. Don’t forget that the classical tradeoffs are that alimony will often continue for quite a number of years, but will terminate upon remarriage or death; whereas child support will typically end at a specific time upon the reaching of majority by the child.
Alimony is usually tax deductible to the one making the payments and taxable to the one receiving them; whereas child support is neither deductible or taxable. There can be opportunities to play off one against the other, and benefit one or both parties. It is important that issue be recognized, and calculations done to determine what is best in your specific situation. Don’t forget that the classical tradeoffs are that alimony will often continue for quite a number of years, but will terminate upon remarriage or death; whereas child support will typically end at a specific time upon the reaching of majority by the child.
Tuesday, November 9, 2010
Anecdote of the Week
SILENCE IS GOLDEN
We were involved as the neutral expert in a business run by the husband where we believed there was cash/unreported income, and had a preliminary conclusion along those lines. During a settlement conference, with both clients and counsel involved, the husband protested mightily that our preliminary conclusions were incorrect, and that his business had no unreported income. While we had our doubts, he made a fairly convincing argument – and we agreed to put that issue aside and revisit it later. We then proceeded in another direction in attempting to settle the case, addressing a loan from the bank that the husband had to take out to cover expenses. He complained about carrying the debt load, and how he found it a burden to keep on making payments against that liability – showing us a couple of statements from the bank, indicating the balance, and payments against same. The only problem was that, despite our intimate involvement and familiarity with their personal and business checking accounts, we had seen no evidence of the paydown of any such debt. So, we raised the question as to where the money came from to pay down the debt. As they say, the look on the husband’s face was priceless
We were involved as the neutral expert in a business run by the husband where we believed there was cash/unreported income, and had a preliminary conclusion along those lines. During a settlement conference, with both clients and counsel involved, the husband protested mightily that our preliminary conclusions were incorrect, and that his business had no unreported income. While we had our doubts, he made a fairly convincing argument – and we agreed to put that issue aside and revisit it later. We then proceeded in another direction in attempting to settle the case, addressing a loan from the bank that the husband had to take out to cover expenses. He complained about carrying the debt load, and how he found it a burden to keep on making payments against that liability – showing us a couple of statements from the bank, indicating the balance, and payments against same. The only problem was that, despite our intimate involvement and familiarity with their personal and business checking accounts, we had seen no evidence of the paydown of any such debt. So, we raised the question as to where the money came from to pay down the debt. As they say, the look on the husband’s face was priceless
Thursday, November 4, 2010
Kal's Kweries**
KWERY:
My husband gets a weekly paycheck, but I don’t get to see it. He cashes the check and deposits only some part of it into our checking account. I do not know how much is not being deposited. How can I get a better understanding of what the real number is?
RESPONSE:
If you can wait until he gets his W-2 (and assuming that you will see a copy of it – which you should because it will be part of a joint tax return), then compare the amount in Box 1 of the W-2 minus the federal withholding in Box 2 and the state withholding in Box 17 (that’s if there is state withholding where you are), as well as subtracting local withholding if it applies to you. This will give you a rough estimate of your husband’s year’s total net after tax withholding paycheck. Compare that to the amounts deposited in your checking account during the year. If there is a difference of significance, then you can be pretty sure that something is being kept from you. If the numbers are pretty close, then you can be pretty comfortable that you’re getting an honest count. If you can’t or won’t wait to see the W-2, you can try to get a copy of a cumulative paystub or equivalent – but that may be unlikely since if you’re not getting the weekly paycheck, your husband probably will not share with you the paystub.
My husband gets a weekly paycheck, but I don’t get to see it. He cashes the check and deposits only some part of it into our checking account. I do not know how much is not being deposited. How can I get a better understanding of what the real number is?
RESPONSE:
If you can wait until he gets his W-2 (and assuming that you will see a copy of it – which you should because it will be part of a joint tax return), then compare the amount in Box 1 of the W-2 minus the federal withholding in Box 2 and the state withholding in Box 17 (that’s if there is state withholding where you are), as well as subtracting local withholding if it applies to you. This will give you a rough estimate of your husband’s year’s total net after tax withholding paycheck. Compare that to the amounts deposited in your checking account during the year. If there is a difference of significance, then you can be pretty sure that something is being kept from you. If the numbers are pretty close, then you can be pretty comfortable that you’re getting an honest count. If you can’t or won’t wait to see the W-2, you can try to get a copy of a cumulative paystub or equivalent – but that may be unlikely since if you’re not getting the weekly paycheck, your husband probably will not share with you the paystub.
Tuesday, November 2, 2010
Tax Tip of the Week*
ALIMONY, THINKING OUT OF THE BOX
Alimony is almost always thought of as being deductible by the one making the payments, and taxable to the one receiving it. Indeed, that is typically and almost always the case. However, the tax laws give you an opportunity involving alimony that exists almost nowhere else in the tax laws – and that is to make a determination in advance as to whether or not you want that alimony to be taxable (and deductible). In certain limited circumstances, it may be to everyone’s advantage to make the alimony tax free to the recipient and non-deductible to the one making the payments. This truly involves some creative tax planning, but it is very relevant and apropos in some situations.
Alimony is almost always thought of as being deductible by the one making the payments, and taxable to the one receiving it. Indeed, that is typically and almost always the case. However, the tax laws give you an opportunity involving alimony that exists almost nowhere else in the tax laws – and that is to make a determination in advance as to whether or not you want that alimony to be taxable (and deductible). In certain limited circumstances, it may be to everyone’s advantage to make the alimony tax free to the recipient and non-deductible to the one making the payments. This truly involves some creative tax planning, but it is very relevant and apropos in some situations.
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