10 Questions by Attorney Debbie Smith of Watertown Massachusetts regarding divorce issues and paternity cases for David Goodman, CPA in light of the federal tax law

10 Questions by Attorney Debbie Smith of Watertown, Massachusetts regarding divorce issues and paternity cases for David Goodman, CPA in light of the federal tax law

The Tax Cuts and Jobs Act law that was signed by the President on December 22, 2017, made changes to the way family law lawyers have been working on divorce and paternity cases. To find out how to best to save people money going through divorce or pursing a paternity matter, Attorney Smith has drafted some questions for David H. Goodman, CPA/ABV/CFF, CVA to provide answers (which he has answered in blue below) in light of this tax law. Many clients have sought dependency exemptions, deductions for alimony and other ways to save money before the tax law was signed. However, times have changed and new ways to resolve divorce and paternity cases will have to be sought.  This article dated February 23, 2024, is an update of the article on February 8, 2019.

10 Questions by Attorney Debbie Smith of Watertown Massachusetts regarding divorce issues and paternity cases for David Goodman, CPA in light of the new federal tax law

  1. Are the dependency exemptions for parents still available for the federal tax returns in 2023 and 2024?

The personal exemptions beginning with tax year 2018 are suspended between 2018 and 2025. They are reinstated in 2026. The exemption previously was $4,000 reduction in income per exemption. An example of the tax savings for someone with a 25% marginal tax rate, meant a reduction in tax of $1,000.

  1. If there are no dependency exemptions in 2023 or 2024, are there any other tax savings that a parent could seek on their federal income tax return instead? Also, what is a child tax credit and how much savings could a parent receive?

For 2023, there is a child tax credit for parents who have children under the age of 17. The credit is $2,000 per child. For a single parent, their income must be less than $200,000 to claim this child tax credit and less than $400,000 if filing jointly.  For 2024, it is proposed that this credit be adjusted for inflation. Congress is also considering raising the refundable amount of the credit.

 

  1. Are there any other tax benefits post pandemic in 2023 or 2024 that either parent can get for their child or children?

 

Taxpayers with dependents who don’t qualify for the Child Tax Credit may be able to claim the Credit for Other Dependents. They can claim this credit for other dependents in addition to the Child and Dependent Care Credit and the Earned Income Credit. The maximum credit amount is $500 for each dependent who meets certain conditions: Dependents of any age, including those who are age 18 or older, dependents who have Social Security numbers or Individual Taxpayer Identification numbers, dependent parents or other qualifying relatives supported by the taxpayer, and dependents living with the taxpayer who aren’t related to the taxpayer.

The credit begins to phase out when the taxpayer’s income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000.

A taxpayer can claim this credit if:  they claim the person as a dependent on the taxpayer’s return, they cannot use the dependent to claim the child tax credit or additional child tax credit, and the dependent is a U.S. citizen, national or resident alien.

 

  1. Can a parents share dependency or child tax credits every other year in a Separation Agreement for a divorce case or an Agreement for a paternity case?

 

Yes.  There are specific guidelines covering this. The custodial parent generally claims the qualifying child as a dependent. The custodial parent is the parent with whom the child spends the greatest number of nights. If the number of nights is the same, then the custodial parent is the one with the higher income.  If the noncustodial parent wishes to claim the qualifying child as a dependent, they must receive a completed Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. This applies to all benefits related to the child.

  1. Could a payor still get a tax deduction on the federal or state income tax return if the payor paid money for alimony to an ex-spouse in 2023 and/or 2024?

It depends on the date that a separation agreement filed. The tax act makes alimony not deductible by the payer and not taxable to the recipient for separation agreements for a divorce case entered into after December 31, 2018. This appears not to apply to modifications of existing agreements made after December, 31, 2018, unless the modification specifically states it will apply. Accordingly, if alimony is deductible to the payor and taxable to the recipient, for separation agreements in divorce cases entered into before January 1, 2019, they are still deductible. Effective January 1, 2022, alimony is not deductible to the payer or taxable to the recipient in Massachusetts.

  1. What are the recapture rules regarding federal income taxes and will they apply after 2018? Who will it apply to?

After 2018, since alimony is not deductible, the recapture rules don’t apply. Neither do the concerns about alimony being considered deemed child support. The good news is this provides a lot of room for creatively structuring support payments. Alimony may be front loaded (paid up front) or reduced with contingencies related to a child, such as if the child graduates from high school or college.

  1. Are dependency exemptions and alimony deductions still allowed on the Massachusetts state income tax returns in 2023 and/or 2024?

Massachusetts allows a $1,000 exemption for each qualifying dependent and a personal exemption of $4,400 if filing single or married filing separately $6,800 for head of household, and $8,800 for filing jointly.

 

  1. Can the two parties seeking a divorce still claim the property taxes and state income taxes for their marital home on their federal income tax returns in 2023 and/or 2024?

Under the tax law, beginning in 2018, the maximum deduction for state and local taxes is $10,000 ($5,000 for married filing separately). It does not matter whether the tax is a property tax or income tax. This creates a hidden marriage tax. Single persons also may deduct up to $10,000 in state and local states.

For 2023 the standard deduction is now $7,700 for married filing jointly, $20,800 for head of household, and $13,850 for single. This is adjusted for inflation, and for 2024, the standard deduction will be $29,200 for married filing jointly, $21,900 for head of household, and $14,600 for single. However, this increase in the standard deduction changes and reverts in 2026 back to the amounts in place before the new tax law.

  1. Since homes in Massachusetts have gone up in value so much recently, does the $250,000 credit per person still apply if two people sell their marital home so they don’t have to pay capital gains taxes on that money if their house sells for a lot more than they paid for it?

There is no change to the exclusion on the sale of the primary residence. However, there is a change to what interest can be deducted. Starting in 2018, the deduction for interest expense on a residence is limited. For loans entered into after December 15, 2017, the allowable maximum debt is $750,000 – down from $1,000,000 and home equity interest is no longer deductible.

 

  1. What are the rules for paying capital gains taxes if two married people own real estate in Massachusetts, they get divorced, one moves out, one keeps the property and then the property is sold in 3-5 years period of time?

  When a primary residence is sold, there is a $250,000 exclusion from the capital gain. The capital gain is the selling price less the cost basis. If two people jointly owned the house jointly, then each is entitled to a $250,000 deduction for a total reduction of $500,000. If the two people get divorced then special rules apply.

Each person must have used the home as their primary residence for a total of 24 months in the previous 5 years. If you were separated or divorced prior to the sale of the home, you can treat the home as your primary residence if: you are a sole or joint owner, your spouse or former spouse is allowed to live in the home under a divorce or separation agreement, and uses the home as their main home.

The following is from the Internal Revenue Code, “Solely for purposes of this section, an individual shall be treated as using property as such individual’s principal residence during any period of ownership while such individual’s spouse or former spouse is granted use of the property under divorce or separation instrument.”

This is a complicated area and you should consult a knowledgeable tax advisor to make sure you will qualify for the exclusion.

Thank you David for your thoughts on this changing tax climate.

This article is not meant to provide legal advice by Attorney Debra L. Smith or tax advice by David H Goodman, CPA. It is meant for informational purposes only. Both Attorney Smith and Mr. Goodman state that one should seek legal and accounting advice on their specific case.

2024 Copyright Debra L. Smith and David H. Goodman, CPA. All rights reserved.

For more information on a specific topic, please visit IRS.gov and Mass.gov

Five Ideas on How to Resolve Family Law Issues Using Mediation and Collaborative Law, Remotely during the COVID-19 Crisis*

By Debra L. Smith, Attorney at Law and Mediator*

During this COVID-19 crisis, while staying at home, you may decide to make some major changes in your life that involve family law issues. Where do you turn if you can’t get into court for a period of time? What are the best ways to get family law issues resolved amicably? What are five ideas for steps to take now? Who can you hire? Where do you turn?
Continue reading Five Ideas on How to Resolve Family Law Issues Using Mediation and Collaborative Law, Remotely during the COVID-19 Crisis*

Ten Benefits of Using an Attorney in Getting a Divorce in Massachusetts

You have been with your spouse for years and have been unhappy in the marriage for some time now. You think you want to get divorced as least expensively as possible. Your thought process is I don’t want to spend money on attorneys. Should you forgo hiring an attorney?

The 10 benefits of hiring an attorney could be:

1. When speaking to an attorney, it helps you to determine your legal rights and your best options. You won’t seek surgery  without getting your best course of treatment from a competent doctor, so should you go through a divorce without an attorney?
Continue reading Ten Benefits of Using an Attorney in Getting a Divorce in Massachusetts

Fixed Fees in Collaborative Family Law Cases*

A Scenario**

You thought the marriage to the love of your life was going to be forever. After his six-month affair with the attractive woman from his department at the ad agency he works for, you just do not trust him anymore as your husband.

You met at Emerson College and have been married for 15 years. He is a great father to your three children who are six, ten and 14. He is attentive to them, is a great provider and a respectful person. You want to get a divorce and would like to work this divorce out amicably using the collaborative process.

However, the cost of a getting a divorce concerns you as you still have loans from college at Mass. College of Art and graduate school at Emerson College, the mortgage from your home, the auto loans and child care costs. Using a collaborative law process to get divorce seems too expensive. Your Husband has some small loans left from Harvard University where he got his MBA. Both of you make a good living, but the expenses are so high in the Boston area that you have to carefully watch your budget. You don’t want to spend hours in court, have others hear your private issues and spend lots of money in legal fees. You have some savings. So what can you do?

Continue reading Fixed Fees in Collaborative Family Law Cases*

10 Things to Consider Before Signing a Prenuptial Agreement

By Attorney Debra L. Smith of Watertown, Massachusetts.

The evening was exactly how you always dreamed it would be.  You had hoped your significant other would propose marriage on a warm summer night at a fancy restaurant.  Dinner felt magical as you both sat on cushy chairs, drinking glasses of your favorite wines with a tasty dinner.  Gleaming candles atop a crisp, white tablecloth reflected on the nearby water.  As attentive waiters served dessert, your soon-to-be spouse gave you the ring you had been eyeing.  It was a special evening you will never forget.

The next day, your fiancé called with a somewhat less romantic proposal: that a Prenuptial Agreement is needed to be signed before you got married.

So, what do you need to consider for a Prenuptial Agreement?  Most states require the Prenuptial Agreement to be in writing and for both individuals to retain separate legal counsel and to fully disclose their financial assets and liabilities.  In order to reach an agreement, you could use mediation, collaborative law or traditional negotiation.

So what are 10 things to consider before signing a Prenuptial Agreement?

1. Hire a competent attorney who is experienced in the current laws in your state and in drafting Prenuptial Agreements. If your marriage doesn’t work out, you want to make sure your rights are protected. Money spent on a good attorney is an investment in your future.

2.  Fully disclose your assets and liabilities.

a. Gather up your most recent financial records for your stocks, bonds, annuity funds, bank statements, retirement accounts, the appraisal for your home, car, boat and any other costly assets, a couple of years of your tax returns and recent pay stubs. You will need to exchange this asset information with your soon-to-be spouse. In addition, you will have to create a list of your assets on a “Schedule” to attach to the Prenuptial Agreement.  It will be helpful to gather such information to create a current and accurate Schedule.

b. Get all of your statements of liabilities such as credit card debt, mortgage, home equity line, student loans such as for trade school, college or graduate school, personal loans owed to family or friends, auto loan and other debt.  Make a list of your liabilities for your Schedule.

3. Print out two copies of your documents of your assets and liabilities (one for your attorney and one for your soon to be spouse’s attorney) or gather documents in an electronic file for them.

4. Determine if you want the Prenuptial Agreement to apply to divorce, separate support and inheritance-related matters. You will need to figure out what is Separate Property which each of you have owned before your marriage and will remain Separate Property and which will be Marital Property. Discuss options with your attorney.

5. Depending on your financial circumstances and if you are seeking your soon to be spouse to waive assets or income in the Prenuptial Agreement, consider options such as paying some money or assets to your fiancé after periods of time that you are married, if you have considerably more assets and income than him or her. Alternatively, if your financial needs are greater than your fiancé, consider seeking some money or assets from your soon to be spouse after being married for a period of time,  if the waiver of assets or income is sought. Another option would be to have the Prenuptial Agreement end after a long term marriage, which is having a sunset clause.

6. Think about if you want to waive alimony. Sometimes, it may not be a good idea to waive alimony as you don’t know what will happen in the future.  Your needs may change, such as if you will have children and one of you will stay home with the children, if you become unemployed with no job prospects or if you become unable to work. Paying alimony could be a tax deduction in the future, so you may want to talk to your attorney and accountant about it.

7.  Remember you can’t waive paying child support for children in a Prenuptial Agreement as it is against public policy. Children need to be supported.

8.  Determine whether a family member or close friend has named you as a beneficiary to inherit money, real estate, stocks, etc. and discuss with your attorney about disclosing that in your Schedule.

9. Do not send any tax returns, retirement funds, pay stubs, bank statements or any other asset or any statements containing of your liabilities which has birth dates, social security numbers, account numbers in an unencrypted e-mail to your attorney or to your soon to be spouse. Protect your online security.  Use encrypted software to send the information or put it on a flash drive with a password.

10.  Make sure the Prenuptial Agreement is signed at least thirty (30) days before your wedding day and not the day before your wedding as you want to make sure that it will hold up in court.

To sum, make sure you get good legal advice from a competent attorney, consider what is the best process for you such as using mediation, collaborative law or traditional negotiation in creating a Prenuptial Agreement, make sure you have full disclosure of your assets and liabilities and have it signed in plenty of time which is at least 30 days before the wedding day.  Hopefully, you will never need to use the Prenuptial Agreement, but if you do, you will have it in case the marriage does break down.

An excellent resource is “Prenups and the Elephant in the Room, A Handbook for the Prenup Process”  by Deborah Hope Wayne, Esq.  which can be obtained at www.deborahwaynelaw.com or www.amazon.com.

This article is not meant to provide legal advice, but is for informational purposes only.

© Copyright Debra L. Smith 2017.  All rights reserved.

Postnuptial Agreements: Can These Potentially Save Your Marriage?

By Amanda Driscoll, Law Clerk*

Ethel Brown and Francis Brown** who reside in Massachusetts have had disagreements over finances for the last few years.  Two of the three wonderful children are finally out of college and the third just finished trade school.  They have been married for 25 years and would like to stay married.  They won’t call their marriage rocky, but they argue over money. They were considering going to a marriage counselor, but wonder if there is another way to help them stay married and decrease the conflict about financial issues.  If they have deep-rooted problems, such as financial security worries or a spouse’s expensive habits, there is another option.

Another way to identify and resolve marital concerns is by constructing a postnuptial agreement. Postnuptial agreements, sometimes referred to as “postnups,” are written and implemented after the marriage has been formed. This agreement states the obligations and responsibilities each partner in a marriage is obligated to carry out. In fact, marriage is an economic partnership, thus both partners can benefit from a contract in writing describing marital terms and conditions.

Until recently, two types of enforceable contracts had been used in Massachusetts to define property rights upon divorce. These two types were prenuptial agreements and separation agreements. Prenuptial agreements are implemented before the parties marry, whereas separation agreements are at the time the parties divorce.

In 2010, the Massachusetts Supreme Judicial Court (SJC) authorized a third option: postnuptial agreements. Postnuptial agreements are executed after the marriage agreement has been formed and before the spouses have expressed intent to divorce. Postnuptial agreements resemble separation agreements more than prenuptial agreements, since if one of the spousal partners does not agree with the terms of agreement, the parties are nevertheless bound to the agreement. In contrast, if a person is dissatisfied with the terms of a prenuptial agreement, that person can walk away and not get married. Once the two parties are married, however, rights and obligations are solidified, and the spousal partners are generally bound by the terms of their premarital agreement.

In Ansin v. Craven-Ansin, 457 Mass. 283 (2010), the Supreme Judicial Court in Massachusetts held that postnuptial agreements are not automatically unenforceable as a matter of public policy. However, not all postnuptial agreements will be enforced by the court. In order for postnuptial agreements to be enforceable, the agreement must pass a five-factor test. The most significant part is the question as to whether the agreement is fair and reasonable, and the other four factors help to provide the evidence demonstrating the fair and reasonable nature of the agreement.

What is considered “fair and reasonable” is not easily specified. This factor does not require that both spouses end up with an equal amount of marital property or money. Rather, the “fair and reasonable” factor is an assessment of all circumstances surrounding the marital agreement. The judge balances various factors against one another and evaluates which way the scale tips, either being a fair and reasonable agreement and thereby enforceable, or towards an unjust, unreasonable agreement that is unenforceable.

The judge determines whether the agreement was fair and reasonable at the time of creation by looking at the big picture. This type of evaluation can involve consideration of the spouses’ motives, such as whether they entered into the agreement to financially protect themselves, or children from a prior marriage. Another important concept to consider is whether there is any disparity in relation to property division in the agreement. The context of the postnuptial agreement is to be highly scrutinized by the judge.

Next, the judge takes another look, analyzing whether the postnuptial agreement still remains fair and reasonable at the time of divorce. This analysis assesses what circumstances have changed since the postnuptial agreement was created, considering factors such as spousal parties’ current age, health, occupation and employability and other factors and whether it would be possible that one spouse would be unable to sufficiently support himself or herself if the postnuptial agreement was not enforced. If one party would in fact be unable to properly support himself or herself at the time, then the postnuptial agreement may be considered to not be fair and reasonable at the time of the divorce.

Postnuptial agreements can be an effective tool for spouses who want to determine what will happen to their marital property if they divorce. An agreement created outside the jubilance of an upcoming marriage, or amidst the turmoil of a pending divorce would likely yield best result. Nevertheless, it is important to keep in mind that if circumstances significantly change from the time in which the agreement was created and when the divorce takes place, it can run the risk of the agreement no longer being fair and reasonable.

*A fictitious couple and family.

Resources:

Grossman, Joanna. “The Enforceability of Postnuptial Agreements: Massachusetts Weighs In, Part One in a Two-Part Series of Columns on Postnuptial Agreements.” FindLaw. (2010). Available at: http://supreme.findlaw.com/legal-commentary/joanna-grossman-archive.html.

Maier, Lynn, Esq. “Why a Post-Nuptial Agreement Can Save Your Marriage.” HuffingtonPost. (December 2011). Available at: http://www.huffingotnpost.com/lynn-j-maier-esq/why-a-postnuptial-agreeme_b_997219.html.

Walckner, Stephanie. “Fair and Reasonable in Massachusetts Postnuptial Agreements.” Marital Mediation. (April 2011). Available at: http://www.maritalmediation.com/2011/04/fair-and-reasonable-in-massachusetts-postnuptial-agreements/.

*Amanda Driscoll graduated from Suffolk University in May 2013 with a major in public administration and a minor in business law. While at Suffolk University, Ms. Driscoll was in the Griffin Honor Society,  the Secretary of the Suffolk University Environmental Club and an Eco Ambassador of Suffolk University Sustainability. She currently attends Mass. College of Law in Andover, Massachusetts, where she expects to graduate with a juris doctor degree in 2018 and Suffolk University in public administration, where she expects to obtain her masters degree in public administration in 2017.  Ms. Driscoll received a CALI Award for the highest grade achievement in the study of Writing and Legal Research in June 2016.

The Volunteer Attorney Representing Children (ARC) in Massachusetts:

By Amanda Driscoll, Law Clerk*

NOTE:  This article is for informational purposes only.  To request an ARC attorney, interested individuals will need to contact the court in the county where their case is located.  

Some of the most significant issues in Massachusetts Family and Probate Courts are those involving unemancipated children.  The court has jurisdiction over those children pursuant to Massachusetts General Laws, Chapter 208, Sections 19, 28, 28A, 29, 30, 31 and 31A.  In 2013, a program called Attorneys Representing Children (ARC) started in Massachusetts which an attorney voluntarily represents the child’s interest in a divorce case or other probate matter.

In determining the outcome of these cases, the court must consider what is in the best interest of the child.  Accordingly, a child’s preference is one piece that may be helpful to the court for this determination.  There is a wide variety of other resources available to the court in identifying the child’s desires and interests.

Continue reading The Volunteer Attorney Representing Children (ARC) in Massachusetts:

Nesting: The Modern Era Convenience for Divorce

By Amanda Driscoll, Law Clerk*

What is Nesting?

When it comes to divorce, nesting is a new trend that is on the rise nationwide. Nesting is the process by which the mother and father take turns being available in the home, while the children remain within the “nest,” or family home, consistently throughout the process. For instance, the father may have certain days or time intervals each day, while the mother occupies the other time interval, like a shift change in a sense. Nesting allows divorced parents to give children stability and reduce financial burden by providing themselves with the proper amount of time to wait before selling the family home or investments.

Continue reading Nesting: The Modern Era Convenience for Divorce

Litigation Involving a Divorce Case by Debra L. Smith

Should you Pursue Litigation First?

This Article discusses Litigation in a Divorce Case in Massachusetts. It is not meant to provide legal advice, but is for informational purposes only.

After realizing that a marriage is over, one’s first reaction may be to rush over to the court house to file a divorce action to get a divorce quickly.  Is it realistic in a divorce case to get an immediate divorce in Massachusetts, where all issues are not already resolved completely and a Separation Agreement is not signed in front of a Notary Public? Continue reading Litigation Involving a Divorce Case by Debra L. Smith

What’s On Your Lunch Box?

What’s On Your Lunch Box?
By Debra L. Smith, Attorney at Law

It is more difficult that it used to be to find a lunch box that is free from a concerning chemical smell.

To be more ecologically responsible, I purchased stainless steel Lunchbots and To-Go Ware Tiffin Sidekick to take lunch, plus Klean Kanteen water bottles for drinking water on the go.  Sandwiches fit easily in the Lunchbots and snacks fit in the To-Go Ware Tiffin Sidekick. The stainless steel Lunchbots avoid the use of plastic bags being placed in the environment after use. Klean Kanteen water bottles avoid my being exposed to BPA that is in some plastic bottles. Water tastes good in these water bottles.
Continue reading What’s On Your Lunch Box?