This week’s post is by Wendy Knutson, CPA.
If you’re getting a divorce, you’ll have to work through a variety of financial issues governed by prevailing state law. But don’t overlook the federal income tax implications. Advance planning can be critical in the following areas:
Alimony vs. child support. Generally, payments designated as alimony in a divorce decree are deductible by the payer and taxable to the recipient. But the opposite is true for child support; the payments can’t be deducted by the payer and are tax-free to the recipient. Make sure that the decree accurately reflects your intentions.
Filing status. If you divorce before year-end, you must file your 2012 federal income tax return as an unmarried individual. Depending on your situation, you may fare better or worse as an unmarried filer. For instance, joint filers could be hurt by the “marriage penalty” if the income of the spouses are relatively equal. In that case, it may be advantageous to finalize the divorce before year-end.
Dependency exemptions. Generally, the parent who has custody of young children for most of the year is the one entitled to dependency exemptions for the children. However, a noncustodial parent may claim the exemptions if the custodial parent signs a formal waiver.
Division of property. Property transferred incident to a divorce is tax-free to the recipient. The recipient’s basis and holding period are the same as they were for the ex-spouse. If you receive property in a divorce and then sell it, you must report the realized gain or loss on your tax return.
Other special tax rules may apply to the sale of a principal residence, IRA and retirement plan benefits, and life insurance policies. In summary: Seek expert tax guidance throughout the divorce proceedings to protect your financial welfare.
Your Functional Divorce Assignment:
If you’ve got questions about taxes, give a CPA a call.
It’s rare that someone sees their divorce as a success. Most people see divorce as a failure – their personal failure. The very sad fact is that it’s not unusual for someone to interpret the failure of their marriage as their failure in life. This couldn’t be further from the truth!
As an individual, you deserve to be successful, to feel confident and be happy again. Although none of that will happen until you choose to believe that you deserve to be successful, confident and happy again.
One of the first things I explore with each and every one of my clients is their belief in themselves. Let me ask you the same question I ask them. On a scale of 1 to 10 with 10 being the most wonderful sense of self-confidence and 1 representing a level of self-confidence that’s on par with where earthworms live, what’s your level of self-confidence?
Most people going through divorce report numbers below 8, sometimes well below 8. If that’s the case for you, relax, you’re not alone.
Here’s the story of one of my former clients that I’ll bet you can relate to.
Anna (this isn’t her real name) has a great sense of adventure and is always ready to try new things. Her sense of adventure allows her to feel lots of excitement for almost any new project. Although something happened when she got divorced, instead of her usual optimism, she felt adrift and uncertain.
When we first started working together, she would enthusiastically start working on new goals and projects, but for some reason she just couldn’t keep her excitement up long enough to achieve any of them. Instead of feeling excited, she would start thinking about how hard the goal would be to achieve or that now really wasn’t the best time to start working on this particular project. Of course, then she would start to feel bad about herself. Her lack of self-confidence was causing her to get bogged down and not achieve her goals of creating a wonderful new life for herself after her divorce. She was sabotaging herself.
Our work together showed that the root cause was a lack of self-esteem and belief in her right to have a good life again, so I created a custom program for her designed to increase her confidence. She was diligent in working the program and boy did it pay off!
Even though she still has moments of doubt that creep up once in a while, she is now pursuing her dreams and enjoying her full life again. And when the occasional doubt creeps in, she simply reviews her program and gives her confidence a boost. This boost allows her to sustain her sense of adventure and excitement while she continues pursuing her goals.
Are you curious to know more about Anna’s program and if it would work for you?
Let me give you an exercise to start you on you way to a higher level of self-confidence.
Your Functional Divorce Assignment:
Start by making a list of 10 things you like about yourself. If you find it difficult to come up with 10 things, ask someone close to you to tell you somethings they like about you and put these things your list.
After you’ve got your 10 things, read your list out loud to yourself with positive emotion. Now, to get the best results, read your list out loud to yourself when you first get up in the morning and just before you go to sleep at night. When you read your list in the morning, you’re setting up how you want to feel about yourself for the entire day. When you read your list before going to sleep, you’re setting up your subconscious to focus on what’s wonderful about you.
The more consistently you do this, the better you’ll feel about yourself. And before you know it, your self-esteem will regularly be at an 8 or better.
I’m Dr. Karen Finn, a divorce coach and advisor helping people just like you who are dealing with the stress and pain of divorce. You can join my newsletter list for free weekly advice. And if you’re interested in taking the first step toward working with me, you can schedule an introductory private coaching session.