Chapter 4 Flashcards
Common Law
Equatable distribution (41 states) 50/50 is norm but not required Equitable does not mean equal
Community Property
All Property acquired during marriage is split 50/50
Assets or Income
HSA/MSA
Transfer
Not considered a taxable event
After transfer the interest is treated as the spouses HSA/MSA
Purpose of IRC SEC 1041
Avoid capital gain to the transferor spouse
IRC SEC 1041
A transfer incident to divorce if it is made within 1 year after marriage terminates OR is related to the marriage termination
Separate Property
Property brought into the marriage
AND
Kept Separate
Temporary Order
May be used to limit the amount that can be spent by the dependent spouse
SEC 1041 DOES NOT APPLY TO
Taxpayers spouse or former spouse is a nonresident alien
Certain transfers in trust or certain stock redemptions
Common Law Marriage
Act like they are married
Hold themselves out to the world as married
Intend to be married
Closely Held Business Valuation
Questions to Ask
Was the business established before or after the marriage
Did it grow substantially during the marriage
If it did grow was the ex spouse a stay at home?
Was separate property from either spouse invested in the business
Was it a joint business run by both spouses
Fair Market Value
What a willing buyer and seller can agree upon as a final price…in cash
Capitalized Earnings
When a business has limited assets but constant cash flow
Professional practice
Goodwill
The increase in earnings or value brought about through repeat business
Stock Options
In most states stk options granted to a spouse wile married become part of the marital property
Stock options are considered to be additional forms of compensation
Viewed as deferred compensation tied to a future value of the stock
Defined Benefit Plan
The employer promises a retirement benefit or pension to the employee when the employee spouse reaches retirement age
403(b) Catch Up Rules
With employee for 15 years
Additional $3,000 for up to 5 years
ROTH IRA Distribution Rules
Had the Roth IRA for 5 years
59 1/2
Qualified 1st time homebuyer
457 Plan
NQ Plan for Government Employees
Catch up provision…yes
Double contribution for 3 years?
Social Security…Marital Property?
Generally not considered marital property
QDRO
Qualified Domestic Relations Order
Court order on payments to alternate payee
What a QDRO CANNOT Do
Require the payment of benefits to an alternate payee if those benefits are already payable to another alternate payee
Specify who will be responsible for payment of taxes
Wait and See
The pension assets are on hold until a future date and then are split at the date of retirement
Reserved Jurisdiction Method
Asks the court to wait and delay until a later date before valuing and dividing the pension because there are too many unknown variables at this time thus making an accurate current valuation unlikely.
Spousal Support IRC Code
IRC Sec 71(b)
Alimony
Deductibility of Spousal Support
Support is deductible by the payer and must be included in the spouse’s or ex spouse’s income
