Frumkes on Divorce Taxation
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TABLE OF
CONTENTS
INTRODUCTION
CHAPTER 1 PRELIMINARY ISSUES
§1.1 Responsibility to Present Tax Issues
§1.2 Manner of Representation
§
§1.4 Tax Consequences Should Be Considered in
Divorce Agreements
§1.5 Unknown Tax Consequences
§1.6 Tax Court Decisions
§1.7 Authoritative Tax Resources
§1.8 Tax Advice From Divorce Attorney
§1.9 Judge’s Duty to Report to I.R.S
CHAPTER 2 PROPERTY ASPECTS: DISTRIBUTION OF
ASSETS AND LIABILITIES
§2.1 Property Transfers
§2.1.1 Internal Revenue Code Section 1041
§2.1.1.1 Non-Recognition of Tax for a Transfer From
a Spouse or Former Spouse to a Spouse or Former Spouse Incident to Divorce
§2.1.1.1.1 Transfer Incident to Divorce; Presumption
§2.1.1.1.2 Non-Applicability of I.R.C. §1041
§2.1.1.1.3 Tax Consequences of Transfer of Property From a
Spouse or Former Spouse
§2.1.1.2 Capital Gain Rates
§2.1.1.3 Transfers to Third Parties on Behalf of a
Spouse or Former Spouse
§2.1.1.4 Disposition of Closely Held Corporate Stock
by Stock Redemption
§2.1.2 United States Savings Bonds; Accrued Interest
Taxable to Transferor
§2.1.3 Stock Options, Transfer in Divorce
§2.1.4 Record Requirements
§2.1.5 Accounts Receivable; Value Reduced by Income
Taxes
§2.1.6 Contingent Tax Liabilities; Effect on
Valuation of Distributable Assets
§2.1.6.1 Effect on Distribution of Assets
§2.1.6.2 Some Possible Solutions to Consideration of
Contingent Tax Liabilities
§2.1.6.3 Variations on Majority Rule
§2.1.6.3.1 Retirement Funds as Variation on Majority Rule
§2.1.6.3.2 Valuation for Gift and Estate Taxes
§2.1.6.4 Valuation of Marital Estate; Reduction in
Value for Potential Tax
§2.1.7 Present Value; Rate of Reduction on Deferred
Payments
§2.1.8 Tax Refunds and Carry Forwards of Tax
Overpayments
§2.2
§2.2.1 Deferral of Gain Prior to August 5,
1997—I.R.C. §1034
§2.2.1.1 Gain Was Postponed, Not Forgiven
§2.2.1.2 Purchase Price Less Than Sales Price
§2.2.1.3 Postponement of Gain Was Mandatory
§2.2.1.4 Occupied as Principal Home
§2.2.2 Pre-August 5, 1997—Exclusion of Gain
§2.2.2.1 Ownership and Use Test
§2.2.2.2 Ownership and Use Tests Met at Different
Times
§2.2.2.3 Exclusion of Gain Only Once—Taint Rule
§2.3
§2.3.1 Excerpts of I.R.C. §121
§2.3.2 Exclusion of $250,000 of Gain
§2.3.3 Ownership and Use Test
§2.3.3.1 Limitation on Exclusion of Gain From Sale or Exchange of Principal Residence—Vacation or Second Home
§2.3.3.2 Reduced Maximum Exclusion
§2.3.3.3 Title Controls Liability for Tax
§2.3.3.4 Single Owner Entities
§2.3.3.5 Trusts
§2.3.4 Principal Residence
§2.3.4.1 Multiple Residences
§2.3.4.1.1 Limitation on Exclusion, Conversion of Vacation Home
§2.3.4.2 Vacant Land
§2.3.5 Joint Filers, Exclusion up to $500,000
§2.3.6 Exclusion Every Two Years
§2.3.7 Exercise of $125,000 Exclusion Under Previous
Act
§2.3.8 Tacking on Ownership of Spouse in I.R.C.
§1041 Transaction
§2.3.9 Use Test Satisfied by Possession of Spouse
under Divorce or Separation Instrument
§2.3.9.1 Exclusion Amount, Notwithstanding
Remarriage of “In Spouse”
§2.4 Interest on Deferred Equitable Distribution
Payouts
§2.4.1 Amount of Interest
§2.4.2 Tax Consequences of Interest Payments
§2.4.2.1 Interest Taxable to Payee
§2.4.2.1.1 Consumer Price Index Amount Considered as Interest
§2.4.2.1.2 Interest on Child Support in Arrears
§2.4.2.2 Interest Deductible to Payor
§2.4.3 Solutions to Tax Treatment of Personal
Interest
§2.4.3.1 Treat as Alimony
§2.4.3.2 Gross Up Deferred Payments
§2.4.4 Imputed Interest
§2.5 Mortgage Interest on Qualified Residence
§2.5.1 Excerpts From I.R.C. §163(h) and I.R.C.
§280A(d)(1)
§2.5.2 Deductibility of Interest on Mortgage
Encumbering Qualified Residence
§2.5.3 Interest Is Deductible Only if Paid by
Taxpayer
§2.6 Carry Forwards
§2.7 Tax Liabilities; Distribution
§2.7.1 Jointly Liable
§2.7.2 Solely Liable
§2.7.3 Separate Returns
§2.8 Consideration of Tax Shelters
§2.9 Tax Refunds as Distributable Assets
CHAPTER 3 ALIMONY/SEPARATE MAINTENANCE PAYMENTS
§3.1 Taxability/Deductibility
§3.1.1 Label, Term or Title Immaterial
§3.1.1.1 Support or Property Division;
Distinguishing; Use Caution
§3.1.1.2 Estimated Payment of Income Tax on Alimony
§3.1.1.3 Tax Subsidy
§3.1.1.4 Above-the-Line Deduction
§3.1.2 Internal Revenue Code §71
§3.1.3 Internal Revenue Code §215
§3.1.4 Payments After Remarriage
§3.1.5 Intent of Parties or Court
§3.1.6 Reporting Requirements
§3.2 Summary of Provisions of I.R.C. §71 (The 7
“D”s)
§3.1.7 State Law Applicability
§3.2.1 Spouse or Former Spouse Must Be Recipient
§3.3 Cash Payments
§3.3.1 Cash Received During Taxable Year
§3.3.2 Cash Paid to Third Party
§3.3.3 Writing Required, Voluntary Payment Does Not
Qualify
§3.3.3.1 Letter From Husband to Wife (Not Signed by
Wife)
§3.3.3.2 Amounts Paid in Excess of Instrument
§3.3.3.3 Information on Check Insufficient
§3.3.4 Nonqualifying Items
§3.3.5 Mortgage Payments on Marital Residence—As
Alimony
§3.3.5.1 Payor Holds 100% of Title
§3.3.5.2 Payor Holds Title Jointly With Payee (Each
Liable on the Mortgage)
§3.3.5.3 Payee Spouse Holds 100% Title
§3.4 Divorce or Separation Instrument
§3.4.1 Exception—Written Request to Pay Third Party
§3.4.1-A Legal Obligation to Pay, Absence Thereof
§3.4.2 Retroactive Effect of Instrument Not
Recognized
§3.4.2.1 “Decree” or Judgment, or Written Instrument
Incident Thereto
§3.4.2.2 Invalid Decree or Judgment
§3.4.3 A Written Separation Agreement
§3.4.3.1 Separation Not Necessary
§3.4.3.1.1 Separation Need Not Be Specified
§3.4.3.2 Amounts Need Not Be Specified
§3.4.3.3 Letter Signed by Both Parties
§3.4.3.4 Letter From Attorney for Husband to Wife
(Signed by Wife)
§3.4.3.5 Letters Between Attorneys
§3.4.3.5-A Notation on Check “Support” Insufficient
§3.4.3.6 Validity or Enforceability of Agreement
§3.4.3.7 Tax Consequences Cannot Be Changed
§3.4.3.8 Estimate Amount of Allowable Alimony
§3.4.4 A Decree (Order or Judgment) Requiring
Support
§3.5 Designation as Not Taxable, Not Deductible
(Alimony Can Be Made Non-Taxable)
§3.5.1 Introduction
§3.5.1.1 Separate Streams of Payment, Different Tax
Effects
§3.5.1.2 No Designation Needed That Payments Are
Includible Nor Deductible
§3.5.2 Designation by the Parties
§3.5.2.1 Lump Sum Settlement of On-Going Monthly
Alimony Obligations
§3.5.2.2 Reporting Designation
§3.5.3 Temporary Support Order, Designation by Court
§3.5.4 Final Decree of Divorce or Separate
Maintenance, Designation by Court
§3.5.4.1 Modification or Correction of Final
Judgment
§3.5.5 Rationale for Designation of
Non-Taxable/Non-Deductible Alimony
§3.6 Different Households
§3.7 Termination on Death
§3.7-A Substitute Payments After Death Impermissible
§3.7-B Life Insurance on Death of Payee, Permissible
§3.7.1 Non-Modifiable Alimony
§3.7.2 Lump Sum Alimony
§3.7.2.1 Alimony
§3.7.3 Use of “Alimony Trust” for Payments
After Payee’s Death
§3.7.3.1 Gift Tax Considerations
§3.7.4 Cessation on Death of Payee of Unallocated
Alimony and Child Support (Family Support)
§3.7.4.1 Unallocated Alimony and Child Support Not
Taxable/Deductible
§3.7.4.2 Unallocated Alimony and Child Support Is
Taxable/Deductible Alimony
§3.7.4.3 Caveat: Provide in Writing That Liability
Ceases
§3.7.5 Arrearage of Alimony
§3.7.5.1 Interest on Arrerage
§3.7.6 Attorneys' Fees Paid for Opposing Party
§3.8 Child Support
§3.8.1 Alimony Must Not Be Fixed as Child Support
§3.8.1.1 Insufficient Amount to Cover Both Alimony
and Child Support
§3.8.2 Alimony Not Fixed as to Child Support
§3.8.3 Advantage of Designating Child Support as
Alimony
§3.8.4 Child Support Guidelines; Basis to Deviate
§3.8.5 Future Spousal Support Reduced by Court
Ordered Child Support
§3.8.6 Unallocated Alimony and Child Support (Family
Support)
§3.9 Third Year Recomputation Rule
§3.9.1 Recomputation—Recapture
§3.9.1.1 Post-Separation Years
§3.9.2 Recomputation Rule
§3.9.2.1 Exceptions
§3.9.2.2 Potential Danger
§3.9.2.2.1 Solution I: Fixed Portion or Portions of Income
§3.9.2.2.1.1 Tax Returns, Copies to Spouse, Court Requirement
§3.9.2.2.1.2 Court’s Reluctance to Fluctuating Payments
§3.9.2.2.1.3 Court’s Award of Fluctuating Payments
§3.9.2.2.2 Solution II: Designate the Payments as Non-Taxable
§3.9.2.2.3 Arrearage Recapture Avoidance
§3.9.3 Carry-Back or Carry-Forward Not Available
§3.10 Alimony Payments to Non-Resident Aliens, Withholding
Requirements
§3.11 Payments by Business in Lieu of Alimony
§3.12 Joint Returns
§3.12.1 Exemption for Spouse, Alimony Precluded on
Separate Returns
§3.13 Alimony Trusts
§3.13.1 Differences Between Alimony Trust Payments
and Alimony Pursuant to I.R.C. §71
§3.13.2 Gift Tax Consequences
§3.14 Attorneys’ Fees as Alimony
§3.15 Bankruptcy Proof Support Provision Does Not Transmute to Taxable/Deductible Alimony
CHAPTER 4 PENDENTE LITE (TEMPORARY) SUPPORT
§4.1 Temporary Support
§4.2 Exceptions Applicable to Temporary Support
§4.2.1 Separate Households
§4.2.2 Recomputation Inapplicable
§4.3 Litigation Required
§4.4 Designation Non-Taxable, Non-Deductible
§4.5 Separate Streams of Payment
§4.6 Cash to or on Behalf of a Spouse
§4.7 Payments Must Cease on Death of Payee
§4.8 Unallocated Temporary Alimony and Child Support
(Family Support)
§4.8.1 Fixed as Child Support?
§4.8.2 Advantage of Unallocation
§4.8.2.1 Child Support Guidelines, Effect
§4.9 Modification or Correction of Temporary Orders
§4.10 Attorneys’ Fees Awarded for Adverse Party
CHAPTER 5 CHILD-RELATED EXEMPTIONS, CREDITS AND
DEDUCTIONS
§5.1 The Dependency Exemption
§5.1.1 Entitlement
§5.1.1.1 Custodial Parent of Minor Children
§5.1.1.2 Parents Not Yet Divorced, Not Separated
Under Agreement nor Living Apart for Last 6 Months of Calendar Year
§5.1.1.3 Custody Determination
§5.1.1.3.1 Greater Number of Nights
§5.1.1.3.2 Absences
§5.1.1.3.3 Exception for a Parent Who Works at Night
§5.1.1.4 Children Reaching Age Nineteen
§5.1.1.5 Proof of Contributing Over One-Half of
Support of Dependent
§5.1.2 Applicability to Parents Who Have Never
Married; Paternity Actions
§5.1.3 Exceptions
§5.1.4 Relinquishment and Release of Exemption by
Custodial Parent
§5.1.4.2 IRS Promulgated Form 8332
§5.1.4.3 Revocation of Release of Dependency Exemption
§5.1.5 Excerpts from I.R.C. §152
§5.1.5.1 Form 8332
§5.1.5.2 Terms and Conditions
§5.1.5.3 Attachment to Tax Return
§5.1.5.4 Social Security Number Required
§5.1.5.5 Revocation of Release of Dependency
Exemption
§5.1.5.6 Stepparent Entitlement to Dependency
Exemption
§5.1.6 Court’s Power as to the Relinquishment
§5.1.6.1 Relinquishment Decisions; Rationale
§5.1.6.1.1 Conditions for Relinquishment
§5.1.6.2 Alternating Annually between Parents
§5.1.6.3 Courts Lack Power to Allocate Exemption
§5.1.6.4 Allocation of Exemption Only if Child
Support Payments Current
§5.1.7 Requirement to Execute Waiver to Allocate
Dependency Exemption
§5.1.7.1 Remedy for Refusal to Execute Waiver to
Allocate
§5.1.8 Modification of Allocation Order
§5.1.9 No Minimum Support Requirement
§5.1.10 The Benefit of the Dependency Exemption
§5.1.11 Phase Out of Personal (Dependents) Exemption
§5.1.12 Dependency Exemption Considered as Property
§5.1.13 Dependency Exemption Award Impermissible in
Lieu of Alimony
§5.1.14 Live Ins, Dependency Exemption for Grandmother and Grandchildren Who Live With Taxpayer and Grandmother)
§5.2 Child Tax Credit
§5.2.1 Excerpt From Child Tax Credit Code Provision
§5.2.2 Child Tax Credit ($1000 for Years 2003-2004)
§5.2.3 Phase-Out Thresholds
§5.3 Child and Dependent Care Credit
§5.4 Medical Expenses for Dependents
CHAPTER 6 [RESERVED]
CHAPTER 7 DEDUCTIBILITY OF ATTORNEYS’ FEES
§7.1 Fees Attributable to the Dissolving Marriage
§7.2 Fees Related to Tax Advice
§7.2.1 Disclaimer as to Tax Advice
§7.3 Fees Related to the Production or Collection of
Taxable Income
§7.3.1 Fee to Enforce Prenuptial Agreement
§7.4 Fees for Obtaining or Protecting Capital Assets
§7.5 Fees Paid by One Spouse to the Attorney of the
Other Spouse
§7.6 Limitation on Deductibility of Fees
§7.7 Fees Paid Out of Spouse’s Business Entity
§7.7.1 Fees for Profit Seeking Activities
§7.8 Allocation of Fees
§7.8.1 Factors in Arriving at Allocated Fee
§7.8.1.1 Time
§7.8.1.2 Complexity
§7.8.1.3 Legal Issues in Case
§7.8.1.4 Fee Customarily Charged in the Locality for
Similar Services
§7.8.1.5 The Results Obtained in the Divorce
Negotiations
§7.8.2 Kind and Weight of Evidence
§7.8.3 Practice
§7.8.4 Time Records
§7.8.5 Caveats
CHAPTER 8 THE KIDDIE TAX
§8.1 Tax for Children Under Nineteen, Etc.
§8.2 Parental Taxable Income
§8.2.1 If Parents Are Married and Filing Separate
Return
§8.2.2 If Parents Are Divorced
§8.2.3 If Parent Remarries
§8.3 Responsibility for Filing
§8.4 Practice Tip
§8.5 Obtaining Necessary Information
§8.5.1 Consent for Information to Another
§8.5.2 Power of Attorney
§8.6 Estimates Permissible
§8.7 Investment Strategy Change Required
CHAPTER 9 JOINT RETURNS—MARRIED FILING
SEPARATELY
§9.1 Tax Rates—Four Tax Schedules
§9.1.1 Head of Household
§9.1.1.1 Stepparent Entitlement to Head of Household
Status
§9.1.2 Legally Separated Spouses; Entitled to File
as Unmarried Individuals
§9.1.2.1 Excerpts From I.R.C. §7703
§9.1.2.2 Decree of Separate Maintenance Required
Which Legally Separates Spouses
§9.1.3 Separation Agreements
§9.1.4 Householders With Children, Living Apart
§9.1.5 Judgment of Dissolution
§9.1.6 Legally Separated, Cannot File Joint Return
§9.2 Generally Beneficial to File Jointly
§9.2.1 Refunds and Carry Forwards of Tax
Overpayments
§9.2.1.1 Joint Returns
§9.2.1.2 Separate Returns, Previous Filing of Joint
Return
§9.3 Joint Return Not Always Beneficial
§9.3.1 Medical Expenses
§9.3.2 Itemized Miscellaneous Deductions
§9.3.3 IRA Contributions
§9.3.4 Casualty Loss
§9.4 Marriage Penalty
§9.5 Allocation of Income and Deductions on Separate
Return
§9.6 Joint and Several Liability
§9.6.1 Liability for Payment of Taxes, Assessed by
Divorce Court
§9.6.2 "Innocent Spouse" Status Does Not Relieve Liability Assessed by Divorce Court
§9.7 Deficiency Notice
§9.7.1 Last Known Address
§9.7.2 Deficiency Notice Regarding Joint Return
§9.7-A Address Change
§9.7-A.1 Change of Address
§9.7-A.2 Form 8822
§9.8 Election to File Joint Return
§9.8.1 Amending From Separate to Joint; Joint to
Separate
§9.8.1.1 Joint Return After Filing Separate Return
§9.8.1.2 Separate Return After Filing Joint Return
§9.8.2 Extensions
§9.8.3 Estimated Tax Payments
§9.8.4 Following Switch From Joint to Separate
Filing
§9.8.5 Effect of Agreement
§9.8.6 Same Sex Couples; No Joint Returns
§9.9 Net Operating Losses
§9.10 Other Carryovers
§9.10.1 Charitable Contribution Carryover
§9.10.2 Investment Interest Expense Carryforward
§9.10.3 Capital Loss Carryforwards
§9.11 Court’s Requirement to Sign Joint Return
§9.11.1 Courts Should Not Require Signing Joint
Return
§9.11.2 Court Can Require Compliance With Agreement
to Sign Joint Return
§9.11.3 Authority for Court Requiring Execution of
Joint Return
§9.11.4 IRS Not Bound by Court-Ordered Requirement
of Joinder
§9.12 Joint Returns: What Qualifies?
§9.12.1 Intent Controls: Non-Signing by One Spouse
Does Not Preclude Joint Return Status
§9.12.2 Refusing to Sign as “Bargaining Chip” or
“Ill Will”
§9.12.3 Fear Precludes Intent of Joint Return
§9.12.3.1 Facts Supporting Intent
§9.12.3.2 Facts Rebutting Intent
§9.12.4 Duress, Return Signed Under
§9.12.4.1 Definition of Duress
§9.12.4.2 Finding of Duress
§9.12.4.3 Finding No Duress
§9.12.5 Forging Spouse’s Signature Precludes Joint
Status
§9.13 Filing Separate Return Precludes Joint Status
§9.13.1 Standard and Itemized Deductions for Married
Persons Filing Separate Returns
§9.13.1.1 Introduction
§9.13.1.2 Election to Itemize Precludes Standard
Deduction
§9.13.1.3 Relief by Divorce Court
§9.14 Obtaining an Indemnification and Hold Harmless
Agreement for Signing a Joint Return
§9.14.1 Court Requiring Execution of Indemnification
§9.15 Practice Tips
§9.16 Form of Indemnification and Hold Harmless Agreement
§9.17 Court Imposition of Income Tax Liability
§9.17.1 Tax Liability on Alimony, Payor’s Agreement
to Pay; Amount
§9.17-A Joint Returns During Divorce Proceedings
§9.18 Non-Marital Asset—Effect of Converting to Marital by
Filing Joint Return
§9.19 Estimated Tax Payments; Joint, Then Filing Separate
§9.20 Alimony Amount Not Determined by Income on Joint
Return
§9.21 S Corporations, Caution Against Undistributed
Taxable Income
§9.22 Unused Tax Losses of S Corporation Following Divorce
CHAPTER 10 ASSIGNMENT OF INCOME DOCTRINE,
APPLICABILITY IN DIVORCE
§10.1 Doctrine Precluding Assignment of Income
§10.2 Inapplicability of Doctrine
§10.3 Applicability of Doctrine
§10.4 Factors Considered
§10.5 Applicability in Divorce
§10.5.1 Nonqualified Deferred Compensation Accounts,
Distributions to Spouse
CHAPTER 11 INNOCENT SPOUSE RELIEF (AND
SEPARATION OF LIABILITY AND EQUITABLE RELIEF)
§11.1 Introduction
§11.2 Pre-1998 Innocent Spouse Rules
§11.3 1998 Changes to Rules—Generally
§11.3.1 Internal Revenue Code Section 6015
§11.4 Request to IRS for Relief (Form 8857)
§11.5 Time for Election
§11.5.1 Premature Request for Relief
§11.5.2 Res Judicata Bars Obtaining Innocent Spouse
Relief
§11.6 Innocent Spouse Election
§11.6.1 Knowledge or Reason to Know
§11.6.2 Facts and Circumstances Considered for
Knowledge or Reason to Know Include, but Are Not Limited To:
§11.6.3 Burden of Proof
§11.6.4 Inequity
§11.7 Separate Liability Election
§11.7.1 Eligibility
§11.7.2 Members of the Same Household
§11.7.3 Burden of Proof
§11.7.4 Actual Knowledge
§11.7.5 Duress
§11.7.6 Examples by Conference Committee
§11.7.7 Limitations on Use of Separate Liability
Election
§11.8 Tax Court Review
§11.9 Equitable Relief
§11.9.1 Relief Provided
§11.9.2 IRS Interim Guidance
§11.9.3 Procedure
§11.9.4 Economic Hardship (Qualify for Equitable
Relief Under Innocent Spouse Rules)
§11.10 Effect Upon Signing Joint Returns
CHAPTER 12 TAX PROBLEMS OF “LIVE-IN”
RELATIONSHIPS
§12.1 Dependency Exemption
§12.2 Payments or Transfers of Property: A Gift or Taxable
Income?
§12.2.1 Gift to “Live-In”
§12.2.2 Income to “Live-In”
§12.2.3 Gift and Income, Part of Each
§12.2.4 Deductible by Payor
§12.3 Property Division
§12.4 Gifts
§12.5 Estate Taxes
§12.6 Retirement Funds/Death Benefits
§12.7 Filing Status
§12.8 Sale of Principal Residence
CHAPTER 13 QUALIFIED RETIREMENT BENEFITS
§13.1 General Background
§13.2 Anti-Alienation Provisions of ERISA
§13.3 Retirement Equity Act, Purpose
§13.4 Failure to Include Retirement Benefits in
Distribution
§13.5 Definitions
§13.5.1 Alternate Payee
§13.5.1-AAnnulments Applicability
§13.5.2 Beneficiary
§13.5.3 Contributory Plan
§13.5.4 Defined Benefit Plan
§13.5.5 Defined Contribution Plan
§13.5.6 Domestic Relations Order
§13.5.7 Earliest Retirement Age
§13.5.8 Non-Contributory
§13.5.9 Non-Qualified Plans
§13.5.10 Participant
§13.5.11 Pay Status
§13.5.12 Plan Administrator
§13.5.13 Qualified Domestic Relations Order
§13.5.14 Qualified Plans
§13.5.15 Surviving Spouse
§13.5.16 Survivor Benefit
§13.5.17 Vested Benefits
§13.5.17.1 Graduated Vesting
§13.5.17.2 “Cliff” Vesting
§13.5.17.3 Accrued Benefit
§13.6 Rules for the Qualified Domestic Relations Orders
(QDROs)
§13.6.1 I.R.C. §414(p)
§13.6.2 Discussion of Rules for QDROs
§13.6.2.1 Summary of QDRO Requirements
§13.6.2.2 Benefits, Amounts or Percentage Must Be
Stated
§13.6.2.2.1 When a QDRO Can Be Entered
§13.6.2.3 Fixed Amount of Payment
§13.6.2.4 Percentage of Benefits
§13.6.2.5 Inclusion of a Formula
§13.6.2.6 Early Distribution Option
§13.6.2.7 Benefits: as Provided Under Plan and
Limited to Participant’s Benefits
§13.6.2.8 Number of and Period for Payments
§13.6.2.9 Plan to Which the Order Applies
§13.6.2.10 Participant and Alternate Payee Identified
§13.6.2.11 Priority of Prior QDROs
§13.7 Payment of Benefits to Alternate Payee
§13.7.1 Earliest Date of Payments
§13.7.1.1 Definition of “Earliest Retirement Age”
§13.7.1.2 Examples
§13.7.2 Special Provisions in Plan
§13.7.3 Latest Date of Payment of Benefits
§13.7.4 Death, Disability or Separation From Service
of Employee Spouse
§13.7.4.1 Special Rules Upon Death of Participant
§13.7.5 Other Plan Eligibility Requirements
§13.7.6 Complexities of Defined Benefit Plans
§13.8 Surviving Spouse Designations
§13.8.1 Form of Benefit
§13.8.1.1 Post-Starting Date of Payments; Qualified
Joint and Survivor Annuity (QJSA)
§13.8.1.2 Pre-Retirement; Qualified Pre-Retirement
Survivor Annuity (QPSA)
§13.8.1.3 Consent to Waiver
§13.8.1.4 Marriage of Less Than One Year Duration
§13.8.1.5 Waiver by Spouse of Survivorship Benefits
§13.8.1.5.1 Premarital Agreement, Ineffective as
Waiver of Benefits in a Qualified Plan
§13.8.1.5.2 Premarital Agreement, Waiver of
Equitable Distribution Rights in Qualified Plans
§13.8.1.6 Waiver by Spouse of Benefits in Qualified
Plans
§13.8.2 Death of Alternate Payee
§13.9 Procedural Rules
§13.9.1 Steps to Take
§13.9.2 Compliance With State Law
§13.9.3 Disputes With Plan Administrator
§13.9.4 Fees for Plan Administrator
§13.10 Alimony and Child Support, Use of QDRO
§13.10.1 Security for Future Payments
§13.10.2 Arrearages, Attorneys’ Fees, Temporary Support
and Taxes Thereon
§13.10.2.1 Temporary Relief
§13.10.2.2 Use of a QDRO for Alimony in Arrears 20 Years
After Judgment From Another State
§13.10.2.3 QDRO Entered in Same State to Collect Alimony
in Arrears Nine Years Subsequent to Divorce
§13.10.2.4 Use of Subsequent QDRO to Collect Delinquent
Alimony and Child Support Held to Be a Permissible Modification of Prior
Judgment
§13.10.2.5 Use of QDRO to Collect Required Payment for
Equitable Distribution of Property
§13.10.2.6 Minority Holding That Subsequent QDRO
Constitutes Impermissible Modification Notwithstanding for Collection of
Arrearage in Spousal Support
§13.10.2.7 Tax Consideration When Using QDRO for
Collection of Arrears
§13.11 Form for Court to Reserve Jurisdiction
§13.11.1 Time Within Which QDRO May Be Entered
§13.12 Qualified Domestic Relations Order Checklist
§13.13 Joinder of the Plan, Trust and Plan Administrator
as Third Party Defendants Under State Law
§13.13.1 Attorneys’ Fees Cannot Be Awarded Out of or
Against the Plan
§13.14 Taxation of Payments of Retirement Funds
§13.14.1 Payments From Plan Without QDRO
§13.14.2 Taxation as Annuity
§13.14.3 Taxation of Lump Sum Distribution
§13.14.3.1 Five-Year Averaging
§13.14.3.2 Distributions to Participants Who Meet the
Above Lump Sum Distribution Requirements and Were Age 50 Before January 1, 1986
§13.14.3.3 Ten-Year Averaging
§13.14.3.4 Combined Capital Gain Treatment With Ten-Year
Averaging
§13.14.4 “Roll-over” Alternative
§13.14.5 Loans From Plan
§13.14.6 Ten Percent Early Distribution Penalty
§13.14.6.1 Separation From Service
§13.14.6.2 Equal Payments
§13.14.6.3 Disability
§13.14.6.4 Alternate Payee Payments
§13.14.6.5 Medical Expenses
§13.14.7 Excess Distribution Tax
§13.14.8 Taxation Payments Received by Alternate Payee
§13.14.8.1 Lump Sum Payments
§13.14.8.2 Ten Percent Early Withdrawal Penalty
§13.14.9 Distribution for Child Support
§13.14.10 Twenty Percent Withholding on Distributions From Qualified Plans
§13.14.11 Exempt From Withholding Requirements
§13.14.13 Required Minimum Distributions
§13.15 Top Ten QDRO Mistakes Experienced Lawyers
Make
§13.15.1 Misunderstanding the Type of Plan to Be
Divided
§13.15.2 Attempting to Divide Non-Divisible Plans
§13.15.3 Failing to Use the Correct Name of the
Plan
§13.15.4 Failing to Set a Clear Date of Division
§13.15.5 Failing to Address Earnings and Losses in
a Defined Contribution Plan
§13.15.6 Failing to Address Surviving Spouse
Issues
§13.15.7 Messing Up the “Equalization” of Multiple
Plans
§13.15.8 Ignoring Loan Balances
§13.15.9 Failing to Indicate Who Is Responsible
for Drafting the QDRO
§13.15.10 Failing to Implement the QDRO
CHAPTER 14 INDIVIDUAL RETIREMENT ACCOUNTS, TAX
IMPLICATIONS
§14.1 Introduction
§14.2 Transfers Incident to Divorce or Legal Separation
§14.2.1 Post Nuptial Agreements
§14.3 Ten Percent Penalty
§14.4 Waiver of Penalty for Early IRA Withdrawal for
Higher Education Expense and First Time Home Purchase
§14.4.1 Higher Education Expense
§14.4.2 First Time Homebuyer
§14.5 Twenty Percent Withholding on Distribution
§14.6 Transfers During Marriage
§14.7 Agreement Alone Not Sufficient to Avoid Tax
§14.8 How to Effectuate a Tax Free IRA Transfer
§14.9 Withdrawals From an IRA After Transfer
§14.10 Required Minimum Distributions
§14.11 Excess Distributions
§14.12 Borrowing or Pledging Prohibited
§14.13 Consideration of IRA in Determining Ability to Pay
in Contempt Proceedings
§14.14 Beneficiary Designation Upon Divorce, Effect
§14.15 Income From IRA, Effect on Child Support
§14.16 Garnished Amounts Included in Income
CHAPTER 15 SUSPENDED PASSIVE ACTIVITY LOSSES
§15.1 Excerpt From I.R.C. §469
§15.2 Limitations on Deductibility of Passive Activity
Losses
§15.2.1 Active Participation in Rental Real Estate,
Allowed up to $25,000 Offset
§15.3 Attribution to Each Spouse
§15.4 Material Participation by Spouse
§15.5 Disposition of Passive Activity
§15.6 Disposition in Community Property States
§15.7 Discovery of Existence of Suspended Passive Activity
Losses
§15.8 Consideration in the Value of Marital Assets
§15.9 Planning With Passive Activity Loss Property
§15.10 As a Deduction From Income to Determine Child
Support Under the Guidelines Statute
Appendices
1. Proposed Forms of Orders and Judgments With
Income Tax Consideration Under DRTRA
I. Temporary - All payments taxable/deductible
II. Final Judgment Provisions - Permanent periodic
alimony deductible/taxable
III. Final Judgment - Lump sum alimony
deductible/taxable
IV. Alimony under either temporary order or final
judgment not to be taxable to the wife nor deductible to the husband
V. Alternative to preceding clause (short form - no
provision for adjustment) payments to be non-taxable and non-deductible
VI. Clause for final judgment to designate certain
payments of cash to a third party on behalf of a spouse as
non-deductible/non-taxable
VII. Clause for final judgment for a fixed
percentage of payor’s income - deductible to the payor and taxable to the payee
VIII. Clause for insertion in final judgment
whenever there is to be a transfer of property
2. Recapture Computation Schedules
3. IRS Form 8332, Release of Claim of Exemption for
Child of Divorced or Separated Parents
4. IRS Form 2120, Multiple Support Declaration
5. IRS Form 8615, Computation of Tax for Children
Under Age 18 Who Have Investment Income of More Than $1,800
6. IRS Form 8857, Request for Innocent Spouse Relief
(Rev. June 2007)
7. Some Clauses to Achieve Lester Results
8. Internal Revenue Service Notice 97-10 and 97-11,
issued December 30, 1996 Reform Act
9. Joseph DuCanto’s Calculation of Effective Federal
Tax Rate (2008) in Percentages of Taxable Income
10. Rev. Rul. 2002-22
11. 2007 Tax Brackets (Table I)
12. Deductions From Income (Table II)
13A. Beneficiary Designation or Change
13B. Individual Retirement Account Change of Account
Information
14. Other Protection (Some Useful Clauses)
I. Rebut Presumption Not a § 1041 Transaction Where
Transfer of the Marital Residence is Subsequent to 6 Years
II. Prenuptial Agreement/Waiver of Interest in
Qualified Plan
III. Future Spousal Support Reduced by Court Ordered
Increase in Child Support
IV. Joint Returns: Indemnification, Deficiency
Assessment, Contest, Amended Returns, and Refunds
V. Requirement to Provide Records in I.R.C. § 1041
Transaction
VI. Intended Taxable/Deductible Alimony Adjustment;
Intent of Parties
VII. Dependency Exemption (Child Tax Credit);
Unallocated Support; and College Attendance
VIII. Furnishing of Information to Tax Authorities
IX. Stock Options; Responsibility for Tax Upon
Exercise of Option
X. Attorneys’ Fees; Attorneys’ Advice to Client,
Deductible
XI. Non-Taxable Nature of Property Transfer
XII. Distributive Payment, Non-Taxable,
Non-Dischargeable in Bankruptcy
XIII. Untimely Payment of
Alimony/Non-Taxable/Non-Deductible
15. IRS Form 8379, Injured Spouse Allocation (Rev.
January 2009)
16. Treas. Reg. § 1.1041-2
17. Itemized Deductions on Separate Returns
18. IRS Revenue Procedure 2003-61: Equitable Relief
From Income Tax Liability
19. IRS Form 8822 Change of Address
20. IRS Form 8888 Direct Deposit of Refund to More
Than One Account
Table of Cases
Index to Internal Revenue Code Sections
Index to Treasury Regulations
Index to Revenue Rulings
Index to Private Letter Ruling Citations
Index to Internal Revenue Service Chief Counsel’s Advisory
Index to Proposed Regulations
Index
Updated 04/06/12
