Lesson 5 Flashcards
All of the following wealthy people are working on their estate plans with a financial planner. For whom
is the use of a qualified terminable interest property (QTIP) trust most appropriate?
A. An unmarried divorcee with children from a previous marriage
B. A young couple who just had their first child together
C. A single parent with young children
D. A husband with children from a previous marriage
D. A husband with children from a previous marriage
Which of the following statements concerning a qualified domestic relations order (QDRO) is correct?
A. A QDRO must be limited to vested and accrued benefits only.
B. A QDRO should specify that the plan participant should be required to pay all income taxes if the
nonparticipant spouse withdraws from the pension.
C. A QDRO is a binding legal document that should be prepared by a qualified attorney.
D. A QDRO provides that the spouse receiving the retirement benefits will become the account owner
for the purpose of titling the account.
C. A QDRO is a binding legal document that should be prepared by a qualified attorney.
Which one of the following statements concerning the division of a retirement plan during a divorce process is correct?
A. The use of a QDRO provides simplicity and an equitable amount of dollars for each spouse
at retirement.
B. The wait-and-see method of valuation requires an immediate valuation of the account balance.
C. Under the buyout method, the nonparticipant spouse is given a vested interest in the participant
spouse’s retirement account.
D. Under the buyout method, each spouse shares the risk of future investment performance in the
retirement plan account.
A. The use of a QDRO provides simplicity and an equitable amount of dollars for each spouse
at retirement.
Which of the following statements is true in regard to the tax issues of property settlements occurring
as a result of divorce?
A. The spouse receiving the property must pay long-term capital-gains taxes on any gains realized on
the property between the date of transfer and the date of purchase.
B. Consideration paid for the property by the transferee will add to the transferee’s income tax basis.
C. Transferred property does not receive a step up in basis.
D. The spouse transferring property must use their lifetime gift tax exemption to avoid paying gift
taxes.
C. Transferred property does not receive a step up in basis.
Which of the following statements concerning the application of IRC Sec. 1041 to property
settlements pursuant to divorce is correct?
A. Sec. 1041 provides that no gift taxes will be imposed on a property settlement transfer pursuant to
divorce, even if no consideration has been provided by the transferee spouse.
B. Sec. 1041 provides that payments for child support required by the divorce decree will be
deductible by the payer spouse.
C. Sec. 1041 provides that payments for spousal support shall be treated as ordinary income by the
payee spouse.
D. Sec. 1041 provides that property settlement transfers between spouses pursuant to divorce
will not trigger recognition of capital gain on appreciated property.
D. Sec. 1041 provides that property settlement transfers between spouses pursuant to divorce
will not trigger recognition of capital gain on appreciated property.
Which of the following constitutes a blended family?
A. Any family that includes a person who has been divorced
B. A married couple in which the spouses are not citizens of the same country
C. A grandparent raising a grandchild
D. A married couple raising children from previous marriages together
D. A married couple raising children from previous marriages together
Which of the following statements concerning the implications of community-property laws on property
acquired by a married couple is correct?
A. Community property cannot be used to satisfy the individual expenses of either spouse.
B. Community-property law provides that the surviving spouse shall have the right to receive 100
percent of the property at the death of the first spouse to die.
C. Accounting for the payment of expenses on separate property is needed because the use of
separate property to pay such expenses could at least in part convert the property to
community property.
D. Qualified retirement plan accounts are not assignable and cannot be treated as community
property under federal law.
C. Accounting for the payment of expenses on separate property is needed because the use of
separate property to pay such expenses could at least in part convert the property to
community property.
Tom and Martha divorced earlier this year and entered into a written property settlement agreement
about 3 months later. Martha had significantly more income and transferred investment real estate
that she separately owned to Tom as part of the settlement process. She preferred the transfer of the
real estate as opposed to providing Tom with a share of her retirement account. The real estate was
valued at $2 million at the time of the transfer, and Martha’s adjusted basis in the real estate was
$400,000. Which of the following statements concerning this transaction is correct?
A. Martha made a taxable gift to Tom of $2 million and must use her lifetime gift tax exemption to
avoid paying gift taxes.
B. Martha had to recognize a long-term capital gain of $1.5 million at the time the property was
transferred to Tom.
C. Tom took the investment real estate with an adjusted cost basis of $2 million for income tax
purposes.
D. The transfer had no immediate impact on Martha for gift or income tax purposes.
D. The transfer had no immediate impact on Martha for gift or income tax purposes.
Sam (aged 62) and Alex (aged 67) were married for 15 years before divorcing 5 years ago. Since
then, neither has remarried. Sam earned much less than Alex and is now hoping to receive benefits
based on Alex’s Social Security benefits. Based on this information, which of the following statements
is true?
A. Sam will be able to receive a reduced benefit based on Alex’s Social Security benefits.
B. Until Alex claims her Social Security benefit, Sam will not be able to receive any benefit.
C. Because they were not divorced for 10 years, Sam will not be able to receive any benefit.
D. Sam must wait until full retirement age to collect Alex’s Social Security benefits.
A. Sam will be able to receive a reduced benefit based on Alex’s Social Security benefits.
Madonna and Guy are getting divorced. Madonna is given custody of their two children. Guy will have
significant visitation rights but will not have shared custody. Careful calculation of net earnings
indicates that Madonna has net earnings of $60,000, while Guy has net earnings of $120,000. The
state formula provides that a couple with this earning level would provide $2,100 a month for support
of their children. Which of the following statements concerning the child support provided by Guy is
correct?
A. Guy will pay $2,100 in child support if there are no other adjusting factors.
B. Guy will pay $1,400 in child support if there are no other adjusting factors.
C. Guy’s child support payments might be lower if Madonna pays child-care costs to enable her to
continue working.
D. Guy’s child support might be lower if one child needs private schooling.
B. Guy will pay $1,400 in child support if there are no other adjusting factors.
Which of the following statements is true concerning spousal support payments following divorce?
A. They are determined as part of the property settlement.
B. They can be made in either a lump sum or installments.
C. They are determined by a set of established rules based on the length of the marriage, the ages of
the divorcees, relative earnings, and so on.
D. They are tax deductible by the payor and taxable income to the payee.
B. They can be made in either a lump sum or installments.
As part of the divorce decree, Rafael must pay $1,000 a month in child support payments to his exspouse.
Unfortunately, 6 months ago Rafael lost his job and only just now started a new job making half
of the amount of money that he previously made. Based on these facts, which of the following statements
is true?
A. Rafael may now start paying $500 a month in child support.
B. Rafael’s child support payments may be modified by court order.
C. Rafael may deduct $12,000 a year as an above-the-line deduction for AGI.
D. During his unemployment, Rafael could have opted out of paying child support.
B. Rafael’s child support payments may be modified by court order.
DeSean and Desiree are divorcing and splitting their assets. They have lived in a community-property
state for their entire marriage. Before they were married, Desiree inherited $200,000 which she invested
and has since grown to $400,000. While they were married, DeSean purchased a house that they lived in
and for which he paid all costs (it is now worth $600,000). What is Desiree’s combined share of the
investment account and house?
A. $200,000
B. $400,000
C. $500,000
D. $700,000
D. $700,000
Lauren and Sam are entering into a divorce. Sam spends $15,000 on his attorney and pays the
$12,000 fee for Lauren’s attorney for legal services associated with the divorce. As part of the divorce
process, the jointly titled residence is transferred to Sam, and additional legal fees of $1,200 are
incurred in the transfer of the residence. Which of the following statements concerning the tax
treatment of these costs associated with divorce is correct?
A. The legal fees for Sam and Lauren’s attorneys are specifically nondeductible, but the legal fee
associated with the transfer of the property is deductible.
B. The legal fee paid by Sam for Lauren’s attorney is deductible as spousal support.
C. The legal fees paid for the attorneys are deductible as a reasonable and ordinary expense.
D. All of the legal fees are nondeductible.
D. All of the legal fees are nondeductible.
Which of the following statements is correct concerning methods for valuing a pension during
divorce?
A. With the buyout method, the participant spouse purchases the nonparticipant’s interest in
the pension using comparable assets.
B. A valuation of the account is needed at the time of the divorce with the wait-and-see method.
C. The most commonly used method is the reserved jurisdiction method.
D. With the wait-and-see method, only the participant spouse faces any investment risk.
A. With the buyout method, the participant spouse purchases the nonparticipant’s interest in
the pension using comparable assets.
