|
Tax issues in a divorce are many. There are three broad categories: future tax audit liabilities for joint returns, tax consequences of property settlements, small business issues.
The IRS audits tax returns as much as four years after filing. The audit of a joint return usually results in a tax debt owed by both parties to the joint return even though, typically, only one party is the cause of the debt. The IRS will pursue the assets of both parties for the full tax debt, penalties and interest. After a divorce, it may be extraordinarily difficult to gain the necessary financial cooperation to pay this debt in a fair manner. We offer a pre-divorce audit of the last four years of tax returns to identify any potential liabilities so that they may be dealt with during the property settlement phase.
Principal residence gain exclusions, debt forgiveness income, capital gain income, and capital loss carry-overs are only a few of the tax consequences that affect property settlements. It is, after all, the net after tax value of property that is the correct basis for the division of jointly owned assets. Not only can we calculate a correct after-tax value, but we can suggest other methods of property settlement that may better fit the individual needs of the parties.
If the parties have participated in a short sale, mortgage modification or foreclosure in the years prior to the divorce, it is important to ensure that loan forgiveness income and capital gains have been properly reported. There are methods of avoiding taxation in such cases, but the tax basis of other properties in the settlement may have been reduced by the exclusions.
Often in a divorce in which a small or closely held business is a part of the property settlement, too much reliance is made on the CPA who handled accounting and tax matters for the business. It is as impossible for that CPA to make fair recommendations than for an attorney to represent both defense and prosecution in a trial. Both sides need representation. Were children or a spouse paid fairly for their work? Was the income or credit rating of one spouse more important to financing than the other? Do assets, or the business itself, need to be divided to make a settlement? We offer both an independent analysis of the accounting and tax situation and a certified business valuation.
|
