Recent Posts in Family Support Category
| March 30, 2011 |
| TAX TIME Advice for SEPARATED COUPLES About JOINT TAX RETURNS |
| Posted By Thurman Arnold |
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Q. I'm separated from my ex-husband, and we are in the process of a divorce. He has asked me to file jointly on a 2010 return, and I am wondering if this is a good idea. Any suggestions?
Trudy
Trudy:
I am neither a tax specialist or a CPA. As a family law attorney who is frequently asked this question, I can answer it generally (and do answer it specifically for my clients). I would need much more information in order for you to rely upon my suggestions in answer to the question you present to me. This question is highly fact/situation specific.
You refer to your husband as your "ex" which people commonly do even when they are still married but an action is pending, and I am assuming that there was no termination of your marital status in 2010 in answering this question. If your marital status was indeed terminated on or before 12/31/10, you cannot file jointly for that year.
The chief attribute of filing a joint tax return (for couples who remain married at the end of the tax year), besides potential tax savings from better tax treatment for married couples (who must be opposite-sex gendered under federal law), is something called "joint and several" liability for any amounts due and owing either based upon the return itself, or that may arise later if there is an audit and a deficiency is assessed against either/both of you - if jointly filed, the tax assessment will be joint.
If you file jointly and taxes were underpaid or under-reported, the Internal Revenue Service holds you each equally responsible for the entire amounts that should have been paid. In my experience the risk of these sort of deficiencies exists most frequently where one or both parties is self-employed, particularly in a business. People write off all kinds of expenses, and the IRS audits very few returns compared to the number that are filed. Some statistics (Kiplingers) say this one out of 150 personal tax returns. The risk of tax reporting abuse is high where the IRS is relying upon schedule C's. Perhaps obviously, business write-offs are much more susceptible to IRS attack than payrollees - depending upon what salaried employees claim as write-offs.
If you received spousal support in 2010 and you file jointly with the payor, he/she doesn't get that deduction and you pay no taxes on what you actually received. Depending upon the numbers, this may benefit you. There is no deduction for child support for the payor. For more information about "Family Support" please use my on-site search engine at the top upper right of this page.
It is common for me to see people who separated and/or filed for a dissolution in the final quarter of the prior year to then decide to file jointly for that year even where spousal support was paid, because the payor may be better off overall by electing to not deduct the alimony payments that would otherwise be deductible (and therefore taxable to you) in light of other deductions (particularly head of household). Often it is useful to have a tax preparer run the numbers both way - married filing separately and jointly. A major reason for this is the head of household deduction, which gets shared in a joint filing but is only otherwise available to the parent who had physical custody of 50.1 percent or better for six months and a day or more during the prior year (2010). The high earner gets an advantage from this. Again, I want you to check with your accountant.
There may be other benefits that accrue to a child or spousal support recipient where parties file jointly - if parties file jointly, because the California support guidelines are supposed to be "tax-effected" in the sense that people's actual filing status should be inputted into guideline support calculations (see Family Code section 4059), the payor has more "net disposable income" available to pay child or temporary spousal support when they file MFS (married filing separately) or joint. They pay the greatest taxes as "single", and so their support is lowered. However, these advantages only last so long as the marriage has not been legally terminated, whether by
bifurcation of marital status or otherwise.
I find that parties are better off cooperating about joint tax filings, when it is safe to do so. If you can file jointly because you are still married, and IF your soon to be ex-spouse gets a benefit from that joint filing (depending upon you receive spousal support or not) that is important to him (or her), I recommend that you negotiate a deal where he/she pays you a tad more support in exchange for helping him/her out on the joint filing. You will also want to agree how to divide any refunds - some or all of this refund may be community property depending on how late in the prior year you separated (monies paid to taxing authorities from community property sources remain community property).
Remember - we want to pay Uncle Sam as little as is legal. We want to make more money available to support children. Take advantage of the bias in favor of married couples when it makes economic sense for you. Cut a deal that benefits you too! This issue may give you important leverage that will help you to support the family in terms of net dollars. Otherwise, given the risks why file jointly at all?
Thurman W. Arnold, C.F.L.S. |
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| March 02, 2011 |
| Must I Submit My TAX RETURNS to the COURT or to the OTHER PARTY? |
| Posted By Thurman Arnold |
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Q. I have a hearing coming up involving my ex-wife's request to modify spousal and child support. I've received a letter from her attorney demanding I bring my 2010 tax returns to court, and I do have them since I always file early. However, I don't want to produce these. I've always thought that these documents are confidential and that I cannot be made to produce them if I am not trying to borrow money or something like that. What are my rights?
A. The Revenue and Taxation Code sections 14251 and 19542 do declare that our income tax records are generally privileged from disclosure. However, in California that privilege does not bar production and consideration of your income tax records according to
Family Code §3552 in proceedings involving any kind of support requests.
They are always available in discovery proceedings prior to the hearing itself.
However, what I do recommend is an agreement with the other party or their attorney that while the records may be voluntarily exchanged that they be disposed of or returned after the hearing. Always redact your social security number. Note that Family Code §3665(b) prohibits the other side from disclosing the contents of your tax returns to anyone except:
- the court
- the party's accountant
- some other financial consultant providing assistance with the case
- anybody else the court specifically approves
Of course, once you lose possession of them there is little practical way to enforce these limitations. This is a good reason to not simply hand them over in response to an informal request without safeguards in place.
Since you report that you were asked to bring them in a letter request rather than in response to a subpoena or some other form of discovery request that seek the returns prior to the hearing itself, you might hold on to them until the hearing. If they are to be discussed at the hearing (or if you don't exchange them before because no agreement can be reached on how to protect their confidentiality), then bring them but ask the court under FC section 3552(c) to seal them in the file if the court retains them, or to turn them back to you at the conclusion of the hearing. An advantage to you in handling it this way is that the other party won't have the benefit of reviewing them before the hearing, or have the prior opportunity to have them looked at by their expert.
Obviously, for parties who want to see the other side's returns they are better off obtaining them prior through a demand for production (assuming enough time exists since without a court order shortening time production demands don't have to be answered earlier than 35 days from the date of mailing), and receiving on the date of the hearing might justify asking the court to continue the matter to review them if they are complicated.
By the way, the rules are a little different if you file joint returns, or if your returns contain information that relates to a non-party like a new spouse or possibly a family corporation or LLC that you are only one of several participants of, since their information remains privileged and can only be produced under certain circumstances and using specific procedures - which is another Blog.
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| November 11, 2010 |
| Is It Possible to Get My Ex's TAX RETURNS Without Any MOTION to MODIFY Pending Between Us? |
| Posted By Thurman Arnold |
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Q. We were divorced three years ago and I haven't taken my ex-husband back to Court. I think he is earning a lot more now. Is there anything I can do to find out what his situation is short of actually filing a modification motion?
A. Absolutely. There is a little known trick for obtaining useful information, possibly with a minimum of trouble, once each year. This is the Request for a completed Income and Expense Declaration (Form FL-150) pursuant to
Family Code section 3664.
When there is no motion or OSC pending for a modification, termination, or set aside of earlier support orders you are limited in terms of your discovery rights in California - assuming the proceedings were completed in the sense that nothing is pending or presently calendared (if there is no final judgment in a divorce, partnership dissolution, or paternity action then you are entitled to continue to utilize discovery and what I say here doesn't apply). You cannot, for instance, schedule a deposition or send out interrogatories or even subpoena records, at least not properly. I have seen lawyers send subpoenas when nothing was pending and if I had done nothing they probably would have gotten the information requested since the receiving party doesn't know the status of the case, but when I objected they backed off and canceled the subpoenas at once because it was abuse of process to do what they were attempting.
But in your case you only have the option provided for by FC section 3664. This entitles you to send out on an approved
FL-396 Request for Production of An Income and Expense Declaration After Judgment a request no more than once each year
(Family Code section 3663) for the other party to produce for you an updated Income and Expense Declaration.
Importantly, the responding party is required to attach to it their last year's federal and state personal income tax returns. (Family Code section 3665).
If they do not respond to you within 35 days, or if there information is incomplete as to wages, you may serve Judicial Council Form Request FL-397 upon their employer per
Family Code section 3664(b) and (c). Unfortunately, compliance by the employer is voluntary and so this provision lacks teeth. Yet if you later do file a motion and can show a history of noncompliance by the employer and/or the other party you are more likely to recover attorney fees or sanctions as well as prove that the other party is being evasive or possibly dishonest and this may help you not only to carry your burden of proof and obtain a modification but it may impact how strongly the court acts towards your ex. In the case of family businesses where there is a lack of cooperation it helps the Court to see that you are being stymied.
Section 3664 is also a very useful tool for parties who are trying to modify or terminate support payments that they have been ordered to make. If you are a payor former spouse or domestic partner and want to terminate the other party's support rights, you would begin by sending them the Request. Again, if they fail to cooperate and comply it makes them look like they are hiding something.
Finally, Family Code section 3667 entitles you to recover certain sanctions where the Income and Expense declaration wasn't provided you, was incomplete, or lacked the required tax return attachments. While you cannot recover attorney fees if you don't actually have an attorney (and this section doesn't provide for them anyway), you can recover deposition and related costs, like for subpoenaed records (which can be significant charges), even where you are a self-represented party.
Good luck!
Thurman W. Arnold III,
Certified Family Law Specialist
Board of Specialization, State Bar of California
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