What To Know About Taxes In A Divorce Or Separation

Posted by: Gerald A. Maggio, Esq.

Orange county divorce lawyer; The Maggio Law FirmDivorce is not an easy time for most couples and their families. However, a question whose answer is easy to respond to is the tax implications of a legal separation or a divorce. It has been observed quite often that there are several people who end up paying an exorbitant amount as tax after their divorce. It happens as they are not familiar with the implications in the beginning. After all, a family goes through a crucial transition and hardly enjoys paying a big sum in taxes due to a breakdown in the relationship. Thus, it makes sense for the affected couples to spend some time to think carefully about tax. It will really be an excellent investment for them.

What is the most crucial thing one needs to be familiar with tax on separation or divorce?

As long as a couple lives together and are married, they can transfer assets to each other without altering the CGT or capital gains tax.

However, there are many people who do not realize:

The tax benefit associated with a marriage ceases to exist when the tax year ends just after a permanent legal separation and even before a divorce is effective. Hence, when a couple separates say on January 1st but decides that they want to split after 6 months, they can no longer enjoy the benefit of transferring assets with one another free of tax.

What is the remedial action(s)?

From the tax perspective, it is better to legally separate by the first week of April. Such a decision will give a period of an entire year to the said couple for planning issues related to asset transfer between one another.

Though it may not be a practical action to take for many couples, they may invest some time thinking about it. The harsh reality is by the time most people start thinking about issues related to tax planning when they are getting divorced; they may not enjoy the exemption on Capital Gains Tax.

Family Home

It will be eligible for being exempted from capital gains tax while transferring. However, it has to be the primary residence of the couple throughout the ownership period. The couple can enjoy a relief from capital gains tax when such houses are sold, which have been their main home. Sometimes, there may be some relief even if the said family house is not the main residence during the time a couple was married. In such scenarios, there could be an extension of relief period.

Certain businesses may be granted exemption from CGT:

  1. Some shares in trading companies that are unquoted
  2. Interests in trading partnership
  3. Sole proprietorship

However, the tax implications of a divorce or a legal separation may vary from state to state. Consult a good Orange County divorce attorney to get help and expert guidance when you are about to separate or divorce from your spouse.

Getting divorced in California can be complicated!  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

Factors to Consider Before Accepting a Lump Sum In Your Divorce Settlement

Posted by: Gerald A. Maggio, Esq.

Orange County divorce attorney; The Maggio Law FirmAre you one of those couples who are in the most of your divorce settlement negotiations? If that is so, you should contemplate properly before angering to accept a lump sum as your settlement. In case the non-earning spouse is offered a lump sum in lieu of his or her divorce settlement. The money is needed to support that person’s future lifestyle. However, it often gets quite abstract.

If you are trying to ascertain whether the lump sum offered to you is adequate or not the most important factors to consider are:

  • The plans for investment returns or the growth of that money, which is further dependent on various financial variables
  • Cost of supporting that person’s future lifestyle subject to the evolving requirements and inflation

However, it is not an easy task to estimate the number of funds in today’s currency is required to fund his or her future lifestyle even when that person is financially savvy. It is also tough to determine how the future lifestyle of that person will look like on the basis of getting a lump sum as a divorce settlement today. If you are going through such uncertainties, time to engage a professional and reputable financial planner to help you out.

A good financial planner helps in assisting you with respect to a lump sum money offered during your divorce settlement

Contrary to several attorneys, an experienced financial planner who knows how to work on matrimonial issues is aware of how to look beyond these financial abstractions.  They are equipped to interpret as well as communicate alternative situations the clients. When these planners accept these kinds of matrimonial engagements, their key tool is to come up with a cash flow projection for many years, which is generated on certain logical and reasonable assumptions.

It is difficult to anticipate future expenses and project the cash sources needed to fund such expenses are even tougher. Returns on your investments are dependent on the allocation of your portfolio asset. That, in turn, rely on factors like how much tolerant you are for taking investment task, the capability of replacing lost capital, your age and other economic resources available before you.

It may not be the right thing to do it alone. It makes sense to hire an experienced financial planner who is well aware of such an exercise with his or her other clients. The advisor should have in-depth knowledge of tax laws, should be intuitive, emotionally intelligent and is skilled in portfolio construction.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

Should You File Taxes Separately or Jointly During Divorce?

Posted by: Gerald A. Maggio, Esq.

Top divorce lawyers Orange County; The Maggio Law FirmIn case your divorce is not yet finalized, you could file joint return if you remain married at the end of a tax year or as of December 31. Both husband and wife must provide consent to this filing. If there is no consent and you are still married, then your options are to file “married filing separately” or “head of household.”  When you check the “married filing jointly” box, it is represented to the tax authorities that you are married. This is valid even if you in reality separated and there remains no court judgment which ends this marital status. Any temporary order that relates to child custody, child support or alimony does not affect the marital status. In case the divorce is regarded as final in December 31, it will not be possible for you to file a joint tax return. In such cases, the filing status will be either “head of household” or just “single.”

Discussion is vital

It is important that you discuss all the advantages and disadvantages of filing joint return with either your attorney or your tax advisor. Generally, but not at all times, if you file jointly, your tax burdens will be lowered. This will depend on you and your spouse’s respective incomes, credits and deductions. Principal disadvantage of joint filing is that both the spouses are severally and jointly liable for taxwes on return. These includes any tax deficiencies, penalties and also interest. You can protect this a little with the Tax Indemnification Agreement. The IRS could also permit relief to the spouse who files taxes jointly. There are three kinds of IRS relief, namely equitable relief, innocent relief and separation of liability.

Domestic partners and the same sex

Registered domestic partners and married couples of the same sex cannot file any kind of joint federal returns under any kind of circumstances. For any couple who reside in a state where same sex marriage remains legal or any marriage equivalent relationship is found could file their joint tax returns.

In case your spouse had consented earlier to joint return but refusing in the present

Many spouses use tax filing statuses as their bargaining tool. This makes sense as both the spouses should consent to file joint return. The California court will desist from ordering any unwilling spouse to file joint return. Only in rare circumstances, IRS may accept joint return that is signed by one spouse. Consult your tax attorney if you want IRS to sign single.

Protecting both spouses while filing joint return during divorce

Ensure that the marital settlement judgment or the agreement or the separate agreement explains how to tackle any refunds or tax liability. In case a refund is to be paid through check, ensure that check is paid to both spouses jointly. This will also be valid in case there is a written agreement of the recipient paying the other for any share the spouse should have. In case direct deposit is the mode of refund, do have it passed through joint account or make a written agreement. There is no requirement share refunds or the tax liabilities equally.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

Tax Issues That You Need To Know In A Divorce

Posted by: Gerald A. Maggio, Esq.

Top divorce lawyers Orange County; The Maggio Law FirmGetting divorced? Be prepared to do your own taxes from now on. One of the many headaches of individuals who have recently gone through a divorce is coping with tax issues. Until now you must have filed your taxes as a couple but now the rules will change. You will realize that there are certain issues which you need to understand before you can file your taxes. Here are some of them which you need to look at the next time you file your taxes.

  1. Your filing status

Before you file your tax return, determine your marital status at the end of the current financial year or the year of your divorce. The three types of filing status are married filing jointly, married filing separately and Head of Household. Take the opinion and advice of a lawyer to understand what the different status means and what it holds for you financially.

  1. Child tax exemption

Child support is taxable in California and you can file for a child tax exemption. However, whether you will get the exemption or not will depend on how many children you have. Usually it is one exemption for one child. Also, only one of you can avail the exemption.

  1. Taxes and refunds due

While making your settlement agreement, be sure to include how you are going to handle the tax and refunds. It has often happened that one spouse who ignored the agreement, ended up paying most of the dues. Make sure that it is clearly mentioned how much percentage you have to pay.


Tax issues are tricky and if you are not aware of what you’re dealing with, the loses can be huge. Hire a good lawyer and understand the different tax issues which you need to deal with after your divorce. Make a settlement agreement with your spouse and clearly determine how much you need to pay as part of the tax. It should include child support and alimony as well. Having a clear understanding of the California tax issues during divorce, you will be able to make a better decision.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

Preliminary Financial Disclosures Are Necessary In A Divorce

Posted by: Gerald A. Maggio, Esq.

divorce lawyers in Orange County; The Maggio LawPreliminary financial disclosures have a crucial part in a divorce. Documents detailing the debts and assets of the parties (separately and jointly held) in a divorce need to be prepared. Omission of any debts or assets, intentionally or unintentionally, can affect the outcome of the divorce. California divorce laws require both parties in a divorce to prepare preliminary financial disclosures or else a divorce will not be granted.

The Schedule of Assets and Debts (FL-142) and Income & Expense Declaration (FL-150) make up the preliminary financial disclosures that have to be submitted by divorcing couples in California. All separate assets and debts, property and income from community property are declared in these two documents. The state of California considers all debts, assets, liabilities, pensions and property acquired during the period of marriage as ‘community property’.

Importance of disclosures

The disclosures help the court and the divorcing couples to determine the extent of their community property. For most people, determining community property becomes a tedious task. The state of California allows you to represent yourself in your divorce case. So if you are not aware of what qualifies as community property you stand to lose the case. Similarly, intentionally incorrect disclosures can severely affect a divorce ruling. Either or both parties may get affected.

Result of incorrect disclosures

If a party innocently makes mistakes while filling out their disclosures because they are not aware of what constitutes community property, they stand to lose out on their share of the community property. For example, the husband receives returns on an investment made in his name and the wife inherits a piece of jewelry from her grandmother.

Any person would think that because the investment is in the name of the husband, it is his separate property; and the inherited jewelry is community property because it is not in the wife’s name. But legally speaking, that is incorrect. The inherited jewelry is in fact the wife’s separate property and the returns on investment are a community property. So the woman would have lost out on 50% of the returns on investment.

Intentionally preparing inaccurate disclosures can lead to punishment for the guilty party. If one party makes certain deposits and enjoys benefits from it but the other party is clueless about this income, the situation will be termed as willful withholding of information. The party concealing this information can be punished by the court.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

The Need for Financial Disclosures In A Divorce

Posted by: Gerald A. Maggio, Esq.

divorce lawyers in Orange County; The Maggio LawIn California divorce cases, a financial disclosure known as a “Preliminary Declaration of Disclosure” is a legal document declaring your income and your expenditures, what you own and how much you owe in terms of assets and liabilities is required.  It a legal document that both parties have to prepare and serve separately while filing for a divorce. It is important that this legal document has all the correct information because it is going to be thoroughly scrutinized by your spouse’s attorney.

Completing a divorce financial disclosure 

A divorce financial disclosure is a very crucial piece of legal proof of your finances. All the information provided has to be accurate because all decisions regarding how much spousal or child support you receive or have to pay depends on this paper. Both temporary and final divorce settlements are determined by the declarations in the financial affidavit.

The declaration is made under oath and any false information could mean you being penalized under perjury. In some cases, severe penalties include your spouse being awarded 100% of the hidden assets. So it is absolutely necessary that you provide every little financial detail and be accurate.  Every minute detail has to be furnished for the financial disclosure.  Your expenditures will be categorized.

Consulting with your divorce attorney and financial advisor

Your divorce lawyer generally is the one that will prepare your financial disclosure with your involvement and input.  However, you can have your financial advisor will go through your disclosure with a fine-toothed comb.

Also, your financial advisor can do a lifestyle analysis, which is an analysis of a couple’s spending habits and their daily living expenditures during the last few years as a married couple. All sorts of expenditures – recurring, non-recurring, ordinary and unusual – will be considered. The lifestyle analysis is a sort of a confirmation of the income, expenditure and the net worth statements filed.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

Should You Keep Your Marital Home After The Divorce?

Posted by: Gerald A. Maggio, Esq.

Orange County divorce lawyers; The Maggio Law FirmA divorce means dividing your properties and assets. For many couples, dividing their marital home becomes the biggest issue. It is their most valuable asset and neither of the two spouses wants to part with it. The primary residence has significant financial and emotional importance.

But deciding whether to keep your marital home after the divorce or not should not be decided based on emotions. Thoughtful analysis is required before you take any decision. Or else you may end up regretting your decision. Ask yourself questions from a financial point of view before deciding on keeping your marital home.

Is it possible for you to refinance the mortgage?

If you insist on keeping the house your husband or wife would surely want to have their name struck off from the mortgage (if you are paying one). If you are the only one whose name is left on the mortgage, then you will have to refinance the mortgage.

It can be quite a cumbersome process. You will be required to meet the federal standards of debt to income ratio. And sadly enough, any spousal or child support received by you will not be considered as reliable income until and unless you have been receiving them for the last 1 year.

Will you be able to own and maintain the house?

Maintaining a house is a very expensive thing. Expenses that you will have to bear include property taxes, maintenance and repair costs, homeowner’s insurance, and other related costs. The bigger the house the more the expense. Your income has to be constant and sufficient enough to be able to meet these expenses.

What is the real estate situation in California?

You need to be aware of what the housing market is like in your area. In the off chance that you eventually decide to sell it off in the future you would like to make a profit on the sale. The real estate situation is never guaranteed. So any future projections should be very helpful in taking a decision.

What taxes will you have to pay?

If you sell the house you will have to pay both state and federal taxes on the capital gains that you make from the sale. Capital gain taxes are increasing every year.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process. 

Marital Debt – What You Need to Know When Getting a Divorce

Posted by: Gerald A. Maggio, Esq.

orange county divorce attorneys; The Maggio Law FirmDuring a divorce, the division of assets – whether financial or property often take top billing. You’re probably also weighing options to decide whether you will be able to resolve differences and come to an agreement on how to split up your valuable possessions. But there’s one area that doesn’t always get center stage but could be more important than your assets. And that’s the division of debt.

Why division of debt is so important

Debt has the potential to be as debilitating as not being able to negotiate a reasonable alimony. Just as a dependent partner can struggle if the spousal support or child support agreed to is not adequate, not having clarity or not paying adequate attention to how debt is divided can be dangerous. Even if you do earn an income of your own, after a divorce the money you need to run a separate household on a single income does go up.

Taking on too much of the debt burden, or making assumptions that your spouse will continue to make the payments as they did before is risky. Even the most amicable of divorces can deteriorate into less than attractive arguments that might see your estranged spouse refusing to make any payments on debt that’s in your name, even if it was for a joint asset.

Know your options

The ability to manage debt after the divorce depends on numerous factors, and this must be taken into consideration while working out an agreement. What most experts on divorce and your  attorneys will suggest is that you try and settle all marital debt before heading into a divorce. The other option is to leave it to negotiations and discussions with your attorneys and soon to be ex during the mediation process. The other route is to leave it to the divorce court to decide. In case a prenuptial agreement is in play, this will direct the course of events in a very definitive manner.

Divorce mediation for debt division

If settling all debt before you divorce your spouse isn’t a possibility, know this – courts will only take decisions on joint debt. Anything that is taken out on only one of your names is left to you to negotiate out of court.

How divorce courts divide up debt

Depending on which state you are in, the system varies. For instances, in some states the debt as well as assets you had going into the marriage will be factored in. Others might divide the debt equally between both partners. Alternatively, if one spouse gets more of the property they may also be given more of the debt to handle.

In community property states, everything is divided equally – even debt. And this is true even if you were unaware of debt racked up by your spouse. Prevent nasty altercations with creditors by ensuring full financial disclosure during the mediation and negotiation phase. Request copies of credit reports and list out all accounts and credit cards and any debt with clear instructions on who will service which debt and how much.

If any property like a car or home, which is held jointly and was bought with a loan in both your names, is being moved to only your partner’s name, be sure the debt also reflects the change. If you don’t own the property, you shouldn’t own the burden of having your name on the debt even if you have agreed he/she will pay for it.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.

A Guide to the IRS Release of Claims and Exemption Form

Posted by: Gerald A. Maggio, Esq.

Orange county divorce lawyer; The Maggio Law FirmThe IRS release of claims and exemption form, also known as the IRS Form 8332, is actually two forms instead of one. One of the forms is the release form, while the other is the revocation of release form. What is this release and revocation of release of? This is the claim of exemption that concerns the child tax credit, also known as child dependency exemption. The IRS release of claims and exemption form is relatively easy to fill out, with it being self explanatory for the most parts.

Having said that though, are most parents aware of this? The answer is quite simply a No. Do they have issues dealing with such a form? The answer once again is No. It is important to understand what this is about.

What does it do?

The IRS form 8332 is a form that is filled by the custodial parent of the child. The custodial parent can use this form to do the following things:

  • Make sure to release the claim to exemption form of child/children to enable the non-custodial parent to claim a tax exemption of credit for the child.
  • Revoke a previous release form that was filed for the claim to exemption of the child.

Does the Orange County marital settlement agreement/Judgment need to state that the custodial parent should release the child dependency and tax credit exemption?

Yes, your divorce agreement should have this agreed upon and stated specifically. This is important because:

  • When the spouse or parent signs such an agreement that states the child tax dependency and exemption have been transferred over to you, it becomes legally binding.
  • The order clearly specifies that the spouse/parent needs to execute the IRRS 8332 form.
  • Inability to do so will mean you are able to claim exemption as well as reimbursement for further damages of the money that you lost as result of this disregard of the Orange County divorce agreement.

Why would a custodial parent agree on signing and filing out the IRS release of claims and exemption from?

While it is true that divorce tends to be an emotionally charged affair with each of the spouse holding some kind of bitterness about the other spouse, filing out such a form is not that hard to agree upon between the spouses. This is because the exemptions in this form are likely to have no real value to the parent who has the child’s custody. This is especially true in cases where the custodial spouse is dependent on the other spouse for spousal and child support.

What Are The Tax Implications For Selling The Marital Residence? ( PODCAST)

Posted by: Gerald A. Maggio, Esq.

Top divorce lawyers Orange County; The Maggio Law Firm


Welcome to The Maggio Law Firm’s PODCAST regarding the tax implications for selling the marital residence during a divorce in California and the United States.  

No Legal Advice Intended: This website includes information about legal issues and legal developments. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You should contact an attorney for advice on specific legal problems. Full disclaimer.