Following the money in California divorce

Since we’re talking about California divorce this week, I thought I’d add a note on finances, since they seem to be at least one of the top reasons for divorce. Untangling your financial lives can be really tough, even out of court.  Here are some things to consider:

During divorce:

Tax implications – what are the tax implications of your filing status as you go through divorce?  What are the implications of your asset division?

Expert fees – what are your attorney/accountant/child custody evaluator/financial advisor fees going to be?

Support – there are tax implications to paying and receiving child and spousal (or family) support in California. If you just take the highest/lowest amount because funds are tight, you may be in trouble later.

But the divorce process is just the beginning.  You also have to consider the financial aspects of your post-divorce life.  You need to consider these things as soon as possible, and not wait until it’s happened.

Post-Divorce:

Cost of living adjustment – here’s still the same bills, but only one of you is paying them.

Change in auto/home/health insurance costs

Increase in “combined” costs.  Did you share a Netflix account?

Lower savings and discretionary income due to the tightened financial belt.

Loss of assets in the divorce – that retirement home may be gone.

Needing/getting new employment – what do you do if you’ve never worked?

Reduced retirement income or savings – you may have thought you were set for retirement…now what?

The theme for this week seems to be planning.  Planning is you’re thinking of divorce, and planning if you’re in the process of divorce.  Don’t let the process or anything that happens in the process to take you by surprise.  It doesn’t have to if you know what to look for and where to look. Need more help? Click here to make an online appointment.

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California child support and the tax dependency exemption: Who claims the child?

In a divorce with children, the issue of child support arises, generally, very quickly.  I’ve written about child support before, but today wanted to tackle the issue of the dependency exemption.  There are still many couples that have one parent as the primary wage-earner and one parent who is the primary child care provider.  In the event of a divorce, the wage-earner finds him- or herself trying to balance work and child rearing, and the child care provider must face both sharing the joys and obligations of child upbringing as well as heading out into the job market.

In a first divorce hearing in California when the couple has children, the issue of child support is frequently on the table.  In California, child support is calculated using a software program, and the two main factors considered are timeshare spent with the child(ren) (stated as a percentage) as well as each party’s income.  Once child custody and visitation is worked out, at least on a temporary basis, then child support can be calculated.  Often, the higher wage-earner is looking to claim the child for tax purposes because the higher wage-earner will receive a higher benefit from that exemption.

What may be unclear to both parties, however, is the way child support is calculated in California.  The software program takes each party’s gross income (that’s income before taxes) and the program itself calculates your taxes.  Therefore, the program is designed to know which party will receive the highest benefit from the child exemption as well as what the benefit is.  In California, too, it is presumed that the parent with the highest percentage of timeshare with the child will receive the tax exemption.  This presumption can be shifted to the lower-timeshare parent, however not without consequences.  Because the dependency exemption confers a benefit on the party who claims it, generally when the lower-timeshare parent claims the child, this results in a higher dollar amount of child support paid.

Therein lies the rub.  I have had many clients who have insisted that they claim the child for tax purposes, but once the amount of increase in child support becomes clear, their tune changes instantly.  In cases where the lower wage earner makes little to nothing, however, most courts will generally order the dependency shift because the lower earner gets no or almost no benefit from the exemption.

Which would you prefer?  A lower monthly amount of child support or the dependency exemption?  In most cases, it depends on the specifics of the situation, timeshare, and incomes…yet another reason why there are no “easy” divorces.

Financial issues in California divorce

Since we’re talking about California divorce this week, I thought I’d add a note on finances, since they seem to be at least one of the top reasons for divorce. Untangling your financial lives can be really tough, even out of court.  Here are some things to consider:

During divorce:

Tax implications – what are the tax implications of your filing status as you go through divorce?  What are the implications of your asset division?

Expert fees – what are your attorney/accountant/child custody evaluator/financial advisor fees going to be?

Support – there are tax implications to paying and receiving child and spousal (or family) support in California. If you just take the highest/lowest amount because funds are tight, you may be in trouble later.

But the divorce process is just the beginning.  You also have to consider the financial aspects of your post-divorce life.  You need to consider these things as soon as possible, and not wait until it’s happened.

Post-Divorce:

Cost of living adjustment – here’s still the same bills, but only one of you is paying them.

Change in auto/home/health insurance costs

Increase in “combined” costs.  Did you share a Netflix account?

Lower savings and discretionary income due to the tightened financial belt.

Loss of assets in the divorce – that retirement home may be gone.

Needing/getting new employment – what do you do if you’ve never worked?

Reduced retirement income or savings – you may have thought you were set for retirement…now what?

The theme for this week seems to be planning.  Planning is you’re thinking of divorce, and planning if you’re in the process of divorce.  Don’t let the process or anything that happens in the process to take you by surprise.  It doesn’t have to if you know what to look for and where to look. Need more help? Click here to make an online appointment.

Your status as ‘married,’ ‘divorced,’ or ‘single’ in California divorce

It’s tax season, so your status may be a question you’re wondering…

In California, you are either single or married. If you’re single, you can be never married, widowed, or divorced.

After you file for divorce, you are still married until you have a Judgment of Dissolution of Marriage. This can happen no earlier than six months and one day after the Respondent is served with the Petition. Sometimes, divorce cases are resolved very quickly, and the parties submit their Judgment paperwork far earlier than the six month waiting period. In that case, the Judgment comes back with a date of divorce in the future. This is helpful for planning divorce parties.

Very frequently, however, divorce cases last far beyond the six month period. When that happens, one or both of the parties sometimes want to dissolve their status and become divorced. The case can continue, but the parties themselves will become single as opposed to married to each other. This is often an emotional decision, but sometimes there are practical reasons, such as when one spouse wants to remarry or wishes to terminate status for tax reasons.

Dissolving status before the rest of the case is over is called a bifurcation. You can ask the court to bifurcate your status, but you first have to ensure that certain requirements are met. First, both parties have to be taken care of for health insurance reasons. Second, you have to complete your Declarations of Disclosure (which will be the subject of a posting coming soon). Finally, you have to join any pensions of the parties. These are the main considerations, in addition to the six month waiting period.

The IRS only cares with whether you were formally divorced (with a filed divorce Judgment) on December 31 of the prior year (2015), so that’s how you figure your status for tax purposes.

Child support and the dependency exemption: Who claims the child?

In a divorce with children, the issue of child support arises, generally, very quickly.  I’ve written about child support before, but today wanted to tackle the issue of the dependency exemption.  There are still many couples that have one parent as the primary wage-earner and one parent who is the primary child care provider.  In the event of a divorce, the wage-earner finds him- or herself trying to balance work and child rearing, and the child care provider must face both sharing the joys and obligations of child upbringing as well as heading out into the job market.

In a first divorce hearing in California when the couple has children, the issue of child support is frequently on the table.  In California, child support is calculated using a software program, and the two main factors considered are timeshare spent with the child(ren) (stated as a percentage) as well as each party’s income.  Once child custody and visitation is worked out, at least on a temporary basis, then child support can be calculated.  Often, the higher wage-earner is looking to claim the child for tax purposes because the higher wage-earner will receive a higher benefit from that exemption.

What may be unclear to both parties, however, is the way child support is calculated in California.  The software program takes each party’s gross income (that’s income before taxes) and the program itself calculates your taxes.  Therefore, the program is designed to know which party will receive the highest benefit from the child exemption as well as what the benefit is.  In California, too, it is presumed that the parent with the highest percentage of timeshare with the child will receive the tax exemption.  This presumption can be shifted to the lower-timeshare parent, however not without consequences.  Because the dependency exemption confers a benefit on the party who claims it, generally when the lower-timeshare parent claims the child, this results in a higher dollar amount of child support paid.

Therein lies the rub.  I have had many clients who have insisted that they claim the child for tax purposes, but once the amount of increase in child support becomes clear, their tune changes instantly.  In cases where the lower wage earner makes little to nothing, however, most courts will generally order the dependency shift because the lower earner gets no or almost no benefit from the exemption.

Which would you prefer?  A lower monthly amount of child support or the dependency exemption?  In most cases, it depends on the specifics of the situation, timeshare, and incomes…yet another reason why there are no “easy” divorces.

Changing your name in divorce

In California, it is up to the wife to decide whether she wants her former name back in divorce (if she took her husband’s name).  The husband has no say and cannot ‘prohibit’ her from keeping the name.  The name change is one of the many issues in divorce that need to be taken care of once the divorce is final, and can be overlooked or deemed too much trouble, like estate planning and updating your life insurance, retirement beneficiaries, etc.  But these aspects of your life post-divorce are critical, and here is a great article about name change issues.