104-5 Tax Implications of Changing Circumstances

Question 1

Pre-Tax Cuts and Jobs Act divorce decrees vs. Post TCJA

Answer 1

For pre-TCJA divorce decrees: alimony is tax deductible to the payor and taxable to the payee

For divorces finalized Jan 1, 2019 and after, alimony is not deductible by the payor or taxable to the recipient

Question 2

Joint and several liability

Answer 2

Spouses who file a married filing jointed (MFJ) have joitn and several liability for the payment of any tax due

Question 3

Innocent Spouse Relief

Answer 3

Excuses 1 spouse for the failure of the other spouse’s tax obligation if certain conditions are met

Question 4

Alimony recapture rules

Answer 4

aka excess front-loading rules

Additional measure to dissuade divorcing taxpayers from disguising property settlements as alimony

Essentially, if there is more than a $15,000 decrease in alimony payments between any of the first 3 years when alimony is paid, there may be alimony recapture

Alimony recapture affects the 3rd year of alimony payments only

Question 5

Child support payments

Answer 5

Nontaxable to the payee and nondeductible by the payor

Question 6

Property settlement

Answer 6

A transfer of property between spouses incident to a divorce is always income tax free

Transfer-for-value income tax rules do NOT apply in situations when a life insurance policy is transferred from 1 spouse to another as a result of a property settlement

Question 7

Qualified domestic relations orders (QDRO)

Answer 7

Should be used to divide qualified retirement plan assets among spouses at the time of divorce

If a QDRO is valid and approved by the court, retirement plan assets may be transferred from 1 spouse to the other without any immediate income tax consequences

Question 8

Determining which parent can list children as dependents after a divorce

Answer 8

The parent with custody for a greater portion of the year is treated as providing more than one-half of a child’s support, where the child receives more than half of his total support for the year from either or both parents who are divorced

Question 9

Legally married spouses can file a joint return if:

Answer 9

1) their tax years begin on the same date
2) they are not legally separated under a decree of divorce or separate maintenance on the last day of the calendar year
3) neither is a nonresident alien at any time during the year

Question 10

Payments to former spouses are no longer deductible and are considered alimony only if:

Answer 10

• the payments are made in cash (and not property);
• the decree does not specify that the payments are not alimony for federal income tax purposes;
• the payor and payee are not members of the same household at the time that the payments are made; and
• there is no liability to make the payments for any period after the death of the payee.