Splitting a deferred compensation account in a divorce need not mean loss of tax benefits

Article Abstract:

There are three types of payments made form one spouse to another as a result of a divorce: alimony; child support; and a property settlement. Alimony is deductible to the payor and must be reported as income by the payee. Child support payments generally have no tax effect for either the payor or payee. Nonrecognition of gain on the sale of the principal residence is provided if the sales price is rolled over to a new residence within two years. Deferred compensation accounts are often the largest marital assets aside from the residence and are generally divided by two options: the offset method, in which the non-employee spouse receives nonpension assets to offset marital rights to plan; and the deferred method, in which a share of benefits are paid by the trustee or employer in the future.

Methods

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Changes in the tax consequences of divorce require revised planning strategies

Article Abstract:

The provisions of the Deficit Reduction Act of 1984 and the Tax Reform Act of 1986 that affect the taxation of divorced people are analyzed. Rules regarding the deductibility of alimony have been changed. Child support and alimony can no longer be lumped together and deducted as alimony. No gains or losses are recognized on transfers between spouses.

Divorced people

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Qualifying for nonrecognition on transfers between spouses or as part of a divorce

Article Abstract:

Transfers and divisions of property between spouses or in divorce settlements are usually tax free, because the spouses are considered a single economic unit. The best method for insuring nonrecognition is by using acquisition indebtedness. Another method is to provide for zero interest on the obligation. Both methods are described.

Analysis, Accounting, Property taxes, Property tax, Transfer (Law)

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