Archive for June, 2018

Is There Still A Way to Preserve the Alimony Deduction?

What Are The Options?

The first reaction to this question is “No!”  But let’s dig a bit deeper into what options are open to the couple.

Do You Have to Be Divorced by December 31, 2018?

Possibly not.  Under code § 71, alimony and separate maintenance payments are prescribed as being deductible if, “such payment is received by (or on behalf of) a spouse under a divorce or separation instrument.”  It further states that “The term “divorce or separation instrument” means—

(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree,

(B) a written separation agreement, or

(C) a decree (not described in subparagraph (A)) requiring a spouse to make payments for the support or maintenance of the other spouse.

Based on this part of the code, while there is no precedence for the matter, it appears that a couple need only have a separation agreement in place on December 31, 2018, for their support payments to be deductible.  The interpretation of the tax reform rules appears to indicate that regardless of the repeal of the deduction for alimony paid and corresponding inclusion in income by the recipient (effective for tax years beginning in 2019), that alimony paid under a separation agreement entered into prior to the effective date is generally grandfathered.

If there are modifications, such as the separation becoming a divorce, it is important that the provision is stated in such a way as to be part of the original agreement, incorporating those provisions of support into the final agreement.  If the modification expressly provides that the amendments made by this provision apply to such modifications, it should stand the scrutiny of IRS review.

What About After December 31, 2018?

The tax code provides some options that are not as valuable but still useful tools.  For each of these, check with a tax specialist to verify if it is an option in your situation.

Head of Household:  If there are more that one child in the marriage, it is possible to arrange for joint custody with each parent having primary custody of one child.  You may choose Head of Household filing status if you lived apart from your spouse, meet certain tests, and are considered unmarried on the last day of the year (Code Sec. 2(b); Reg. Sec. 1.2-2(b)).

You can elect Head of Household filing status even if you are not divorced or legally separated.  If you qualify as head of household (rather than as married filing separately), your tax rate may be lower, the earned income credit and certain other credits may be available.

Property Taxes:  When couples divorce, the house is generally the largest asset they hold.  The payment of taxes on that property are still deductible is the combined income, property and sales taxes do not exceed $10,000.  This can be a tax benefit to the higher income taxpayer since the limitation on itemized deductions is no longer a factor.

Interest on Mortgages:  Another deduction may be the interest paid on the property.  It is possible for an interested person, the people on the mortgage, to assume the responsibility for the debt and make the mortgage payments.  This can entitle that paying party to tax the deduction for the mortgage interest.

These are a few options that can help in managing the cash flow burdens for those going through a divorce after December 31, 2018.

For further information, contact us at oaktreemediation.com.  We will be happy to assist you in evaluating your financial options.

 

Armand & Robbin D’Alo

Not All Marriages Can or Should Be Saved

But When Is It Really Over?

At Oak Tree Mediation, our One Last Look™ program helps couples see what divorce is about.  They gain clarity and confidence in their options.  That may be reconciliation, it may be divorce, or some other path forward.

One of our first questions to couples looking at divorce is simple and clear.  “How did divorce become your option for this marriage?”  The response is revealing.  When people indicate mutual participation in the decline in marital satisfaction, there are many more options open to them in their path forward.  When the conversation focuses on the other person, there is little hope for flexibility moving forward.

Looking at the research of John Gottman, this cascade toward divorce is evident when a couple has difficulties starting a conversation without a harsh beginning.  Those conversations continue with criticism, defensiveness, contempt and avoidance tactics (Dr. Gottman refers to this as stonewalling).  The result of this emotional pressure is to become flooded which is a physiological condition of a pounding heart rate over 100 beats per minute, sweating – all the indicators of internal distress.

Next is a body language of withdrawal.  Openness fails as does any attempt at repair.  The result is to rewrite history, focus on bad memories, compound every small issue into larger ones, and finally eliminate the other person from the emotional bookshelf.

John Gottman notes that “In general, the brain stores two kinds of memories, explicit and implicit. The former are conscious remembrances: your grandmother gave you a doll for your sixth birthday, the Red Sox won the World Series (and it wasn’t a dream). But implicit memories may not be completely conscious. Instead, the brain responds with a sort of intuition, extracting rules that fit the circumstances. When the traffic light turns red, you remember to brake— you don’t need to think it through. But when the brain confronts two opposite realities at the same time— what’s called cognitive dissonance— it rewrites your history so that it makes sense and is easier to remember. If you once had fond remembrances of your wedding but now consider your partner a self-centered boor, your implicit memory shifts. The brain spins the past, extracting new rules that fit current circumstances. Now, when you think of your wedding day, what first comes to mind is your new husband’s failure to tell you how beautiful you looked. Whether a relationship is over or just ailing depends on how pervasively negative its history, as the couple tells it.”

This final stage, when history is re-written, is when at least one person starts to focus on the thought that anything is better than this.  As Caryl Rusbult describes it as the comparison level alternative; the desire for something better that ends the current pain.

Couples Are Not the Only Ones Affected

At this stage, when both sides see that the marriage is over, it is time to look at a new relationship – what we refer to as Family Re-Formation.

The process of reforming the family is critical for children.  Research shows that children of divorce, are impacted more by the fighting and negative interaction.  Based on the Gottman’s research in emotionally intelligent children and adults, it becomes clear that when parents are content in their relationships, the children are able to live in an atmosphere of emotional security.  From that platform, they are able to experience the world in a secure way.

I sometimes comment that people should raise a puppy that is fully socialized before getting married.  The process of socialization requires that the puppy is given a positive environment that encourages it to explore and trust that the world around it is full of interesting things.  The other part of good socialization is that the trainer only has the first 12 to 14 weeks in which to do this.  It is a true learning experience that helps people see relationships from a very different perspective.

When considering family changes, the new structures can be as varied as there are families.  But the reality is that couples will not end their interaction with a divorce.  In fact, the level of interaction will become more complex and possibly more frequent than when they were married.

Recognizing this reality can lead to growth or war.  Will this be a step forward into growth or a continuation of hostility?  That is a choice facing couples at the end of a marriage.

 

Armand & Robbin D’Alo