Marriage, Divorce, and Taxes: Why December 31st 2015 is different than January 1st 2016

Getting married in 2015? Or considering finalizing your divorce in 2015? Your status makes a difference for your taxes.

The most important thing to remember is that your marital status on the last day of the year (December 31, 2015) determines your marital status for the entire year for the purposes of income tax filing.

Married in 2015?
First, let’s go over some of the IRS rules and benefits for all of those couples getting married this year.  
If you get married at any point in 2015, you are now required to file taxes either as married filing separately (MFS) or married filing jointly (MFJ) for any income you earn in 2015. What this means is that when you go to file taxes next April, you no longer have the option of filing as a single person.
For most couples filing a tax return as married filing jointly provides a beneficial tax outcome. Married couples filing a joint return can claim two personal exemptions instead of one and can use a standard deduction of $12,400 verses the single taxpayer deduction of $6,200. You can also choose to itemize your deductions for benefits like mortgage interest payments.
Another benefit of getting married this year is that spouses can give each other unlimited gifts without the gift tax limits.
All being said, the change in status is not necessarily a win for many professionals as the marriage penalty can start to impact your tax rate. You can determine if you are going to be impacted by the marriage penalty.  

Divorced in 2015
Under the IRS rules, your marital status on the last day of the year or December 31, 2015 determines your marital status for the entire year.
In California, the Court will not issue an official decree of divorce before 6 months from the date of filing and serving of the Petition for dissolution (California Family Code 2339). This means you need to start the process (file) before July 1st.
It is important to remember that most of the biggest taxable events are not necessarily part of the divorce process itself, but actually occur in the years that follow as a result of the divorce settlement, like the sale of a home, capital gains, and who will be able to claim the children as dependents. These won’t really be affected by whether you get divorced in 2015 or 2016.
Here are some common tax credits and exemptions that could impact your decision to file before June 30th, 2015, though:
 

Children
If you have children, one important tax issue to determine who will take the deductions for a dependent child. This is because the tax implications are important. For each dependent a parent can deduct $3,900 from their federal taxable income.  In order to qualify, the child must live with the parent claiming the exemption more than half of the year and be under the age of 19 at the end of the year. Often parents will alternate who gets to claim the exemption from year to year.

If you are able to get a final divorce decree by December 31, 2015 and file as single another benefit may be that one spouse can claim Head of Household. In order to qualify for this status, you and your ex must have lived apart for the last six months and the claiming parent also has to pay more than half of household costs. In this case, the other spouse files his/her return as single.

Mortgages
Another tax benefit to be aware of is the payment of mortgages.  The person who stays in the marital home may be able to take advantage of one of the most popular tax credits which is the mortgage interest deduction. The mortgage interest deduction is the part of your monthly payment that covers the interest you pay on the mortgage.

Property Taxes
The last issue to be aware of is property taxes. If both parties have made any estimated property tax payments this year, then you have two options. First, one party can claim all of the payments or second the payments can be divided between the parties pursuant to an agreement. These payments should be reflected on your tax return.
Tax issues can be complicated, especially when you are changing your filing status from married to single. Consult with a family law attorney and tax professional to make sure you are aware of the risks and benefits associated with changing your tax status.

Is vacation pay considered community property?

Bay Area Family Law clients may wonder if unused vacation pay is community property. The answer depends on the Court. 

Technically, vacation pay is similar to pension or retirement benefits and is considered community property divisible during divorce. However, this does not necessarily mean a court will divide the benefit in two.

Whether or not vacation pay is divisible depends on the liquidity. One California court has held that accumulated vacation time has no value because it could not be convertible into cash. (Marriage of Lorenz). Another recent case, Marriage of Moore, stated that accrued vacation pay was divisible asset when value was clear from evidence.

If vacation pay is an issue for your divorce, contact a family law attorney now to learn what these cases mean for you. 

Do gifts from grandparents constitute income for support?

No. Experienced family law attorneys will tell clients that gifts do not constitute income available for support. 

Under the Marriage of Williamson, the court of appeal held that large and sporadic gifts from the husband’s parents to the husband during the marriage, which had supported a very lavish marital lifestyle, were not includable as the husband’s income for purposes for calculating child support.

In the Marriage of Williamson, the husband’s father had amended his trust to provide that any loan balances and accrued interest due and owing by the husband at the time of distribution would be subtracted from the husband’s portion of the inheritance, and had testified that he did not intend to make any further advances or “loans” to the husband other than a small annual gift. Because there was no reasonable indication that the husband’s father would continue to give the husband any gifts except the annual gift, imputing income based on prior gifts would lead to a child support order based on money that the husband did not have.  

Contact me at amanda@gordonfamilylaw.com for more information.

Tips for Divorced Parents During the Holidays

The holidays can be a magical time of year, but they can also be difficult and stressful. The obligations seem endless - school performances, work parties, shopping for presents, family visits. Frequently, families are surprised at just how tense the holidays can be.
This can be especially true if you are co-parenting with your ex and have young children splitting time between two homes this holiday season. Nevertheless, with a little planning and flexibility, you and your children can still enjoy the most wonderful time of the year.  Here are five tips for divorced parents during the holidays

1.     Your children come first
The first holiday without both parents present is usually the toughest for kids. You should expect some children to be confused, sad, angry, or disappointed.  Take the time to listen to their concerns and validate that it’s okay for them to have these feelings.  
If you get stressed out about all the holiday minutiae, remember to think about your kids. They can feel your stress, so take a deep breath and find a way to decompress if tensions rise.

2.    Be okay with changes to the schedule
Be flexible but firm about holiday plans.  It’s often challenging to craft the right time-sharing arrangement for the holidays since both yours and your children’s schedules can be very different than the regular day to day.
Children thrive when spending time with lots of caring family, especially during the holidays. If your ex’s Aunt Sophie wants to see your kids for the one day she is in town and that day falls on your scheduled parenting time, consider making an exception so that she can see them--it’s in your children's best interest, and her goodwill could come in handy later. This season’s about generosity, after all.

3. Keep some traditions but be willing to make new ones.

Some divorced parents choose to spend all holiday time together (such as Christmas Eve and Christmas day) to help their children feel supported. There is nothing wrong with sharing these special moments - just because you are divorced does not mean you are not still a family.
However, many families don’t, since sharing traditions can results in drama and what felt good before now feels like merely a reminder of what is gone. If this is the case, move on from past traditions and forge new memories.
Parents often decide to alternate holidays or split the days in half. For example, many parents find that they want to be there for Christmas morning present opening. So each year they rotate where the kids will wake up on Christmas morning.
One last tip is to remember that holidays are ultimately about taking time out of our normal day- to- day to spend time with family. Get creative and come up with a new tradition to follow. For example, some parents decide to celebrate Christmas on on both December 25 (at Dad’s) and December 26th (at Mom’s). Use your judgment to determine what will be a positive and happy experience for your kids.   

4.  Avoid competing over presents
Ex’s can be frustrating - especially when you are trying to solidify holiday plans and they are uncooperative or even just plain nasty. After all, couples often divorce for a reason. Nevertheless, during the holidays, it’s especially important to make sure your decisions, reactions, and behavior reflect what is best for your children’s happiness and well-being.    
Divorced parents sometimes turn holidays into a competition for the best presents, activities, and vacations. This doesn’t help anyone. Instead of comparing yourself to your ex, try to think of alternative ways to involve your kids and your ex in holiday planning.  Try to avoid one-upping your ex or competing for the child’s love by focusing on non-financial presents.
When you are shopping, keep your co-parent in mind. For example, you may want to consider joining forces with your ex to get one bigger present for your child that comes from both parents. Getting a gift from both parents also tells your child that even though you’re no longer married, you will both always be there for him/her.

5. Stock up on Movies, Hot Chocolate, and a good bottle of wine.
Take time to relax this holiday season, even if it’s just a few hours. With so many moving pieces, the holidays can be super stressful and overwhelming.  Pay attention the vibe in your house and if your children need some downtime, make sure you are prepared to have a quiet night in.  Here in San Francisco, we can’t exactly go out and play in the snow, but a moment of lightness is appreciated just the same.  
Dealing with divorce during the holidays is hard; while it’s tough, you need to avoid comparing yourself to either other families (with their picture perfect holiday cards and annual updates) or to your own holidays past. Change is inevitable, there is no such thing as a perfect family, and these comparisons will do nothing other than make you miserable, which doesn’t really fit into the holiday spirit--focus on joy and being grateful for what you do have.

Contact me at amanda@gordonfamilylaw.com for more information.

My child receives derivative Social Security payments due to my disability, is that income for support?

California parents who are disabled or retired often inquire into how their child’s derivative benefits impact child support.

In California, the receipt of benefits by a child, or someone else on the child’s behalf, from federal programs or agencies such as Social Security, the Railroad Retirement Act, or the Department of Veterans’ Affairs by reason of the support obligor’s disability or retirement may be credited toward the parent who pays child support (unless those amounts were taken into account in making the support order).
In 2014, a California appellate court held that a child’s derivative social security benefits do not constitute part of the parents income for the purposes of support. Marriage of Daugherty (2014).  

What this means is that if your child is receiving additional Social Security due to your own disability or retirement, the other parent will have a reduced amount of child support per month.

Contact me at amanda@gordonfamilylaw.com for more information.