The IRS - A Third
Party in Every Divorce Settlement |
Reaching a mutually acceptable divorce
settlement between two parties is never easy. Add a third party, the IRS, and
the process is further complicated. |
How is the IRS a Third Party in Divorce
Settlements? |
In the event of a divorce, applicable IRS
and state tax code along with tax-related case rulings must be carefully
weighed. The IRS becomes a third party in divorce financial settlements to
the extent that property division, alimony, and child support affect taxes
and disposable income. |
Tax Code Affects Alimony and Child
Support Settlements |
A prime example of IRS influence during
divorce settlements is seen through alimony and child support calculations.
The IRS treats alimony and child support differently. Alimony is taxable as
income for the party receiving and deductible for the party paying. In
contrast, child support payment is neither reportable income nor a deductible
expense. Even so, child support payments still impact gross and net income. |
Alimony and Child Support Tax Optimized
Scenarios |
Based on how child support and alimony
payments are allocated, a lawyer can achieve a tax-optimized divorce
financial settlement that often produces higher disposal income for both
parties. Use a software program that instantly prepares a variety of alimony-child
support scenarios, and you can quickly show your client available options. |
Alimony and Child Support Examples |
Here's how a child support and alimony
settlement may or may not be optimized. Using a hypothetical example, with
"John" as one spouse and "Mary" as the other, consider
the following divorce and income situation: |
- New Jersey residents, John and Mary are
getting divorced and have two children. |
- John's 2009 income is $135K/year |
- Mary's 2009 income is $40K/year. |
- Prior to divorce, John's after tax
income was $91K. |
- Prior to divorce, Mary's after tax
income was $34K. |
Out of many settlement options, consider
the difference between the following two. |
Option 1 |
- John pays Mary $5K/year in alimony
(deductible). |
- John pays Mary $20K/year in child
support (non-deductible). |
- John's after-tax income is $68K |
- Mary's after-tax income is $58K. |
Combined after-tax money available
between John and Mary is $126K. |
Option 2 |
- John pays Mary $18K/year in alimony
(deductible). |
- John pays Mary $7K/year in child
support (non-deductible). |
- John's after-tax income is $72K. |
- Mary's after-tax income is $56K. |
Combined after-tax money available
between John and Mary is $128K. |
Option 2 provides $2,000 more after-tax
income than option 1. |
Divorce Financial Planning Software to
the Rescue |
In the past, understanding numerous
alimony versus child support combinations, while factoring in state and
federal codes was impractical, if not impossible. Not anymore. Now attorneys
can create and evaluate divorce financial settlement scenarios in minutes: |
With the right divorce settlement
planning software, you can: |
- Simultaneously show the after-tax
impact on the income of both parents for up to five alimony vs child support
payment schedules |
- Easily compute required spousal support
payments based on the custodial parent's after-tax budget requirement |
- Assemble distributable assets and
liabilities |
- Propose various distribution scenarios |
- Always know how much cash adjustment is
needed to make the pot right |
- Quickly produce customized,
professional reports and charts, suitable for clients, opposing counsel and
the judge |
- Provide divorce planning that is
applicable in all 50-states |
- Offer high-quality solutions in a
timely manner, and expand your firm's client base |
Affordable and effective software cuts
through the tax maze and helps you provide financially optimized settlement
proposals during the initial consultation. Even with the IRS as a third
party, you can convert prospects to clients and reach quick divorce
settlements. |
|
Source: http://www.easysoft-usa.com/ |
Rate this article
|
Publisher
|
Print