7 Tax Implications of Divorce

Tax Implications of Divorce, divroce tax attorney, Fresno CATax considerations are rarely ever a driving force during divorce negotiations. But the tax implications of divorce can be significantly crippling for both spouses. This is especially true in regards to property distribution and spousal support. Fortunately, taking a strategic approach in considering these implications can mitigate the tax consequences of your divorce and help find resolutions in unexplored opportunities. Speaking with an experienced divorce attorney can greatly help you formulate your approach to dealing with these implications.

Below, we list 7 common tax issues that can potentially impact your divorce in California. To learn more, contact the Law Offices of Rick D. Banks today.

1. Alimony Tax Consequences

Unfortunately, under the new Tax Cuts and Jobs Act, payments made for spousal support are no longer deductible for divorces settled after December 31, 2018. This means that high-earning spouses no longer have a significant incentive to agree to pay alimony during divorce negotiations. On the flip side, former spouses that receive spousal support do not have to report those payments as taxable income. So, alimony will more than likely still play a significant role in divorce negotiations.

2. Property Transfers That Trigger Income Tax Liability

Most property transfers among spouses during divorce negotiations are exempt from income tax liability. However, there are certain types of transfers that can trigger income recognition. We strongly advise spouses to avoid the types of transactions that can result in needless liability to the IRS or the California Franchise Tax Board.

3. Tax Credits for Non-Child and Child Dependents

The Tax Cuts and Jobs Act eliminated dependents from personal exemptions through 2025. In addition, it also increased child tax credits from $1,000 to $2,000, as well as giving non-child dependents a $500 credit. We recommend that spouses factor these credits when calculating the obligations of financial support during divorce negotiations.

4. Splitting Retirement Plans

Avoid the negative tax implications of splitting retirement plans by obtaining a qualified domestic relations order (known as QDRO). While a QDRO is not required in dividing a non-retirement investment account or IRA, you should consider other tax implications for those accounts as well.

5. Impact on Business Valuations

The Tax Cuts and Jobs Act will have a meaningful impact on business valuations. This impact is due in part to the act’s reduction on income tax rates for business entities and corporations. This means a higher value on your business due to improved cash flow. We recommend that business owners apply current standards of valuation when going through the process of divorce.

6. Home Equity and Mortgage Deductions

Spouses that divorce in California must not only divide any community assets but also any shared debt. Consider available tax deductions or credits when you determine the prospect of assuming responsibility for any shared debt. However, keep in mind that those available deductions and credits can change.

7. Filing Status

If your divorce is not finalized before the year is up, you can file either with a joint return or under the “married filing separately” status. Filing a joint return may award you a reduction in tax liability, but it may also leave you liable for any omissions or errors your spouse makes. Furthermore, depending on your negotiations for child custody, you may qualify to file under “head of house” status. Filing under this status can lead to significant tax implications as well. Keep in mind that there is a six-month waiting period in California, so all of this is not possible if you file for divorce after July 1st.

Learn More About the Tax Implications of Divorce

For more information on tax implications of divorce in the state of California, consult a family law attorney at the Law Offices of Rick D. Banks today. Our seasoned legal team can help you effectively plan for any tax consequences that may arise from your divorce.

Divorce Debt: How Is Debt Divided in Divorce?

Divorce Debt How Is Debt Divided in Divorce, Fresno CADivorce often requires that couples not only divide their marital property, but their debt as well. Most often, people get so wrapped up in who gets the house that they forget about divorce debt. So how is debt divided in divorce?

Community property states, such as California, require that couples share all assets and debts legally incurred during their marriage. Furthermore, if your spouse takes out a mortgage in their name, then you are equally responsible for that debt upon divorce. To learn more, contact a Fresno family law attorney at Law Offices of Rick D. Banks.

Dividing Divorce Debt in California

Typically, during a marriage, spouses will open joint credit cards and loans. Even if your spouse is the only one that used the card, creditors will see you both as mutually responsible for any incurred debt. Put simply, creditors don’t care who actually spent the money, they just want their money back. Because of this, it’s virtually impossible to get creditors to release one spouse from debt responsibility. However, there are several workarounds the court can employ to divide the owed debt. For example, in their divorce ruling, the court can assign one spouse responsibility for the debt. When this happens, the court will more than likely assign more property to that spouse to balance it out. California law states that all community property and debt must be divided as equally as possible. This is to ensure couples end up with their fair share.

Dividing debt in divorce can play out like in the following examples:

  • One spouse gets the house but must also assume responsibility for paying the mortgage
  • One spouse gets the car but must pay off any remaining loan on the vehicle

Consult a family law attorney to determine how your debt can be divided in divorce.

How Is Separate Debt Handled?

Fortunately, California law recognizes separate debt and property. This means that if your spouse incurred debt before your marriage, then upon divorce you cannot be found responsible for it. Separate debt does not commingle with community debt. In addition, the law won’t force both spouses to pay off individual debt, only the party that incurred the debt will be responsible. Instances sometimes arise when one spouse acquires debt that constitutes a breach in fiduciary duty towards the other spouse. An example of that is one spouse earning debt by recklessly gambling community money. Consult your family attorney if you’re unsure of whether debt incurred by you or your spouse can be attributed to both parties.

Is Individual Credit Affected by Debt in Divorce?

Unfortunately, your individual credit can be affected negatively by debt assigned to you in divorce. Even if you pay your half of the debt on time, if your former spouse fails to pay their half, your credit score will be affected. It may not seem fair but the only way to protect your credit is by making sure all community debt is paid on time. This may mean that you have to cover your ex’s portion as well.

Tips for Paying Off Debt in Divorce

Divorce is hard enough. Adding the stress of debt on top is maddening. This is especially true when you go from a two-income household to only a single income. While your financial future may seem in danger, here are some tips for paying off debt in divorce:

  • Open a separate credit card and transfer your half of the community debt to it
  • Use the proceeds from sold off community property to pay off community debt
  • Save all receipts that show you’ve paid off your share of community debt
  • Sell off assets if one spouse cannot pay their share of community debt
  • For more financially stable spouses, reduce any unsecured debt
  • Pay off as much of the community debt as possible before the divorce is finalized

If Your Spouse Won’t Settle Their Debts Fairly

Just like other contested aspects of divorce, if your spouse won’t agree to handle their debts fairly, you could seek the help of a mediator. A mediator will guide you and your spouse through the division of debt and property. They can also help handle any financial disagreements that should arise. Do not risk your financial future over divorce debt. Speak to a divorce attorney at the Law Offices of Rick D. Banks.

How Can a Father Get Full Custody?

How Can a Father Get Full Custody, Fresno CAHow can a father get full custody? This is a common question we get from clients. Unfortunately, the answer is never easy. There is no clear cut formula that guarantees a father will receive full custody. However, that doesn’t mean there aren’t steps you can take to better help your chances of succeeding.

We’ve represented many fathers in child custody cases. If you need further assistance, contact a knowledgeable family law attorney at the Law Offices of Rick D. Banks today.

Your Child’s Best Interest Should Come First

Who gets full custody depends heavily on the best interests of the child. Above all, their well being is of the utmost importance. When deciding custody, the court operates under the best interest standard, which puts its primary focus solely on the child. You can argue your case all day but if you cannot meet the basic needs of your child, then you cannot be awarded full custody.

Typically, the following factors make-up the best interest standard. Your child’s:

  • Safety
  • Health
  • Education
  • General welfare

If the court primarily focuses on your child’s best interest, then you should as well. However, what can you do to ensure you meet those needs? Keep reading.

Forget Any Biases You May Think Family Court Holds

If you want to succeed, then you need to forget about any biases you may think exists in family court. This is especially true in California family courts. If this bias were to actually exist, then we wouldn’t be able to achieve success for as many fathers as we do. In our experience, the fathers that fail to get custody and claim this basis exists either had poor representation or were ignorant of the case’s facts.

No judge will look at a custody request and think “I don’t think any dad should ever receive custody”, and then rule according to that line of thought. If you go into your case thinking the cards are stacked against you, then you will not be able to fully represent your case.

How Can a Father Get Full Custody Through Family Code 3040?

Under Family Code 3040, in Sections 3011 and 3020 is the following phrase:

“…shall not prefer a parent as custodian because of that parent’s sex.”

The law strictly forbids any bias towards sex when awarding custody. Continuing to hold onto the belief of this bias will only result in you mentally defeating yourself before the trial even starts.

Understand the Differences Between Joint and Full Custody

Joint custody allows equal, or nearly equal, parenting time between both spouses. In comparison, full custody means one parent holds a much larger parenting time (often 65% of more) than the other parent.

When going after full custody, the court will want to know why you believe you are better suited as primary caregiver. This means you will need to demonstrate that you can better serve your child’s best interest.

Bonding With Your Child Can Increase Your Chances Gaining of Full Custody

If during your marriage you did not spend much time with your children, then you face an uphill battle in receiving full custody. Bonding with your child before separation shows the court your dedication towards raising your child. Again, it comes back to what’s in your child’s best interest. Spending more time with your child means a higher likelihood that you serve a great importance in their life.

Have you not bonded with your child yet? Do not give up hope. There are things you can still do.

Make Your Child Your Main Priority

Fathers that have yet to bond with their child but still want full custody need to make the choice — is your child your main priority or not?

If yes, then start acting according to that decision.

Spend as Much Time as You Can With Your Child

How? Spend your entire visitation time with your child. Do not pawn them off onto someone else. You must also keep up with their routines, even adding to them if possible. In short, make your child feel comfortable when they’re around you.

How Can a Father Get Full Custody? We Can Help Answer Your Questions

An experienced family law attorney can help you answer your questions about child custody. Contact the Law Offices of Rick D. Banks today.

Selling a House After a Divorce Agreement

Selling a House After a Divorce AgreementDuring the divorce process, you may be confronted with a dilemma — do I keep my house during divorce, or can I sell it? Unfortunately, this question alone is often a huge source of stress for divorcing spouses. While keeping the family home can offer a place of stability, selling it can lead to much needed financial gains. Fortunately, an experienced family law attorney at the Law Offices of Rick D. Banks can help. Below, we discuss everything you need to know about selling a house after a divorce agreement.

If I Move Out of the House, Can I Still Sell It?

From a legal standpoint, whether you move out or not does not affect your interest on the property. A spouse that holds community property interest will retain that interest regardless of if they live there or not. However, before the house is sold, moving out from the home can pose many practical and financial concerns. For instance, for the spouse still living in the house, they may need to start making monthly mortgage payments that they didn’t need to make before. Or, for the higher earning spouse, now he or she must worry about splitting their income between two households instead of just one.

You combat these concerns by setting realistic expectations ahead of time, and agreeing on these expectations with your spouse. Let’s dive deeper into these expectations.

Expectations on Selling a House After a Divorce Agreement

Most often, selling a house after a divorce agreement is more complicated than just normally selling a house. This is due in part before of Standard Family Law Restraining Orders that take effect the minute you file a divorce petition. Under these restraining orders, the sale of a family residence must be accompanied by a court order or written agreement.

Typically, the easiest way to selling a house after divorce is by signing a written agreement between you and your spouse, which then becomes a court order. However, before you sign this agreement, make sure to get adequate legal representation from a family law attorney to go over the terms and conditions. Some of those terms and conditions includes the following:

  • How will the real estate professional be chosen? Will you have an equal say on who is selling your house?
  • How will the price of your house be set?
  • If need be, how will a reduction in price be decided?
  • Do both spouses get a say on approval of any offers?
  • Which spouse is responsible for getting the house ready to show prospective buyers?
  • Other than the mortgage, will sale proceeds need to help cover any liens or encumbrances?
  • Will sale proceeds be distributed to all parties in whole or in part?

Those are just a few provisions to consider. For a more detailed list, or for specific terms, speak with an experienced family law attorney now.

Getting Permission From the Court to Sell the House Before Trial

Do you have to wait until the end of your divorce to sell your house? In short, no. However, you need to provide a solid reason to the court for selling it early. Below are some common reasons for selling your home before the divorce trial.

The Threat of Foreclosure

Failing to make your monthly mortgage payments will lead to foreclosure proceedings. In addition, failing to make property tax payments can also lead to the same consequence. When facing foreclosure on your family home, you can file a request with the court to obtain permission to sell the home as soon as possible. If you are in this situation, then you must act as diligently as possible. Foreclosure never serves in the best interest of either spouse.

Needing to Pay Attorney Fees

Some divorces require significant representation which leads to expensive litigation fees. If neither spouse can cover these fees, then you can request the court liquidate your assets, including your home, to cover those costs.

Learn More About Selling a House After a Divorce Agreement

For more information about selling a house after a divorce agreement, contact the Law Offices of Rick D. Banks today.