My Forbes.com Articles

Archive for February, 2011

Tax Dilemma for Divorcees – Who Gets to Claim Head of Household?

posted by admin 10:00 AM
Tuesday, February 22, 2011

There are many issues that must be resolved during divorce that will impact how you file your taxes each year. In addition to several potential tax credits, it is important to understand who will be eligible to file as “Head of Household.” This is very important because filing as Head of Household will typically result in a lower tax bill than filing as Single or, if you are not yet divorced, Married Filing Separately.

Generally, the Head of Household filing status is determined by your custody arrangement. The parent who has the children more than one-half of the year can claim the Head of Household filing status. The only way that both parents can claim Head of Household is if they have more than one child and each parent has at least one different child living with them for more than one-half of the year.

People sometimes mistakenly believe that claiming a child as a dependent entitles them to file as Head of Household. This is not necessarily true. To qualify as Head of Household you must meet the following requirements:

• You must maintain a household for your child (even if you do not claim them as a dependent)

• You must be unmarried at the end of the year or living apart from your spouse for more than six months

• The household must be your home and generally must also be the main home of the qualifying dependent (i.e. they live there more than half the year)

• You must provide more than half the cost of maintaining the household

• You must be a U.S. citizen or resident alien for the entire tax year

You do not need to claim a dependent to file as Head of Household. This means that even if you allow your ex-spouse to claim your child as a dependent, you can still file as Head of Household.

If you can claim Head of Household you may also qualify for the Dependent Care Credit, the Earned Income Tax Credit (this is for lower income people), as well as other rebates that may be available for that tax year.
In some cases, if you are separated, but not divorced, and are filing separate tax returns, you may be able to file as Head of Household. You will need to meet the criteria mentioned above to do this.

Deciding the filing status and who will claim dependents can have a tremendous impact on your tax situation. You may be able to save thousands of dollars in taxes. So, it is important to work with a divorce financial specialist (such as one of our Divorce Financial Strategists™) both during the divorce process and after. You need to fully understand the impact that your filing status and tax credits may have on your bottom line before you agree to a divorce settlement.

All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter  Pin It
Comments Off

Protect Your Credit Score During Your Divorce

posted by admin 10:04 AM
Tuesday, February 15, 2011

If you are going through a divorce, you should immediately begin taking steps to protect your credit score. Your financial future depends on a good credit rating. Here are some tips for handling your finances during and after your divorce so that your credit score is protected.

Handling Joint Credit Cards and Other Debts

You should immediately order your credit report and find out exactly what debts you have.  In your credit report you will see all debts that belong to you and your spouse as well as the accounts that belong solely to you. You should closely monitor debts that your spouse has access to, such as credit cards, bank loans, mortgages and home equity lines of credit.  If you are concerned that your soon-to-be ex-spouse might borrow money in your name, you might want to sign up for a credit monitoring service.  These services will notify you anytime there is a change to your credit history.

It is important to note that even if your divorce settlement stipulates that your ex-husband is responsible for payment of certain debts, if he does not pay them or declares bankruptcy the creditors will come after you for payment!  The creditors don’t know and don’t care what your divorce settlement says. Because this was a debt that you both entered into, you’ll need to pay it if he can’t.  Therefore, you may want to include remedies in your divorce settlement to cover situations like this.  One way might be to make sure that joint assets are used to pay off all joint debt or have the property that is going to your ex-husband be placed in escrow until all debts are paid.

Close Joint Accounts If Possible

If possible, close all joint accounts. Most likely, you will only be able to close accounts that have a zero balance.  But, you should call all credit card companies, banks or other creditors to request that the account be closed.  Make it clear that you will not be responsible for any charges.  You should also follow up with a letter stating that you want the account closed.  Keep a copy of the letter as well as detailed notes of your phone conversations.  In both the phone conversation and the letter, ask that the lender report to the credit bureaus that the account was closed at your request.

Stay Current on All Joint Accounts

It is very important to make payments to all joint accounts on time even though you are going through a divorce. Unfortunately divorce negotiations can go on for a long time and not making payments or paying late can really hurt your credit score. Your credit rating will go down if a payment is late or missed entirely, even if your spouse is assuming the debt.

Freeze Accounts that Can’t Be Closed

If you find that you are not able to close an account due to an outstanding balance, request that a freeze be placed on your account.  This will prevent any further charges.  You will still be jointly responsible for the balance, but no further debt can be added to the account.  Remember to document all details related to this call and write and mail a letter. (Talk to your divorce attorney if your husband is using joint credit cards or other marital assets to travel with and/or buy gifts for his mistress.  There is something called dissipation of marital assets and if this is something that your husband is doing, your divorce attorney will need to make that part of any discussions/negotiations).

Close Joint Bank Accounts

Most couples have a joint checking and savings accounts.  These need to be closed as soon as possible, however you should talk to your lawyer before withdrawing money or closing your account since each state has rules about this. You will want to open a new account for yourself as soon as possible.

If you have questions about how you can protect your finances and credit, please feel free to contact one of our Divorce Financial Strategists™ here at Bedrock Divorce Advisors.

All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter  Pin It

One of the issues that often gets overlooked during your divorce is securing your divorce settlement payments, like alimony and child support, should something happen to your ex-husband.  The death of an ex-spouse, and subsequent loss of that income, could be financially devastating.

The Divorce Financial Strategists™ here at Bedrock Divorce Advisors™ bring up this issue with all of our clients because we’ve seen what losing this income can do to families.  Our recommendation is that a life insurance policy be set up in such a way that you will receive a tax-free, lump-sum payment of what you would have received over time from your alimony, child support and/or other divorce-related payments.

It is important to set up this life insurance policy before your divorce has been finalized.  This is because your husband could refuse to cooperate after the divorce in getting the required medical exam.  Or, you may find that he is uninsurable.  Either way, you need to know this before the divorce is finalized so that, if necessary, you can find alternate ways of securing your divorce settlement payments.

It is also critically important that you become the owner or irrevocable beneficiary of the policy.  If you are not, your ex-spouse could stop making payments and you would never know about it until it was too late.  However, if you are the owner or irrevocable beneficiary of the policy, you would be notified of non-payment of the premium and could take action before the policy lapsed.

Using life insurance to ensure divorce settlement payments can be very complex.  The laws and regulations differ from state to state.  Therefore, it is very important that you consult with someone who is knowledgeable and experienced in using life insurance and other methods to secure divorce settlement payments.

You might also consider setting up a disability insurance policy.  Statistically there is a higher chance that your ex-husband would become disabled rather than actually passing away.  If something happens to him and he is no longer able to work, he might seek a reduction in his alimony and child support payments.  Unfortunately, unlike life insurance, the ex-wife cannot own a policy on her former husband.  So you would need to put a mechanism in place to make sure that the disability policy payments are made.

If you have any questions about how to secure your alimony, child support and other divorce settlement payments, please contact one of our Divorce Financial Strategists™ here at Bedrock Divorce Advisors and we’ll make sure that you take the right steps.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter  Pin It
Comments Off

Talk about an emotional roller coaster!

I can’t imagine what it felt like for Holly Lahti, 29, of Rathdrum Idaho, who had the winning numbers to the 2nd largest lottery jackpot in the U.S. earlier last month. And, I can’t imagine that she was terribly disappointed when she found out she had one of the two winning tickets. After all, that still leaves her $90 million – after taxes.

However, there is a blow that I am sure she never saw coming when she purchased that lottery ticket. Although Holly and her abusive husband have been separated for many years (it’s unclear if they were legally separated and that could possibly make a big difference), they never did get a divorce. Because of that, her ex-con husband may now be entitled to a substantial portion of her winnings.

The media has reported this story over and over – it appears that Mr. Lahti is a real loser. He’s been convicted of domestic battery, drug possession, and purchasing alcohol for a minor. It is reported that he has been arrested at least 15 times! There’s even an unnerving photo being circulated showing Mrs. Lahti with a black eye allegedly resulting from a blow from her husband.

Idaho is a community property state. This means that anything acquired during the marriage is considered community property. Community property is defined as all property and debt that was acquired from the date of the marriage until the marital cut-off date. If the couple is unable to agree to how to settle debts and assets (as is most likely the case here!) the court will decide for them. In Idaho, the court is allowed some discretion in deciding how the jackpot will be split. But, it will probably be a long, ugly and expensive legal battle!

You may not be a mega-lottery winner, but there is still a lesson to be taken from this happy, and yet very sad story. If you are considering divorce, you should immediately take steps to boost your chances of coming through your divorce financially secure and in control of your financial future. If you have questions about how to protect your hard-earned assets and property, please feel free to contact us to discuss your specific situation.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter  Pin It
Comments Off