Divorce Advice for Men | Fathers Rights Divorce | Child Custody

by Milandria King, LL.M of Cordell & Cordell, PC

Recent legislation offers breaks for home sales and purchases, above and beyond the deductions for mortgage interest and real estate taxes. The new first-time homebuyer tax credit may reduce a tax bill for 2008 or 2009 by up to $7,500 for a single filer or a couple filing jointly, even if that couple is in the midst of a divorce. For purposes of clarification, “first-time homebuyer” is an individual or a couple who had no ownership interest in a principal residence in the United States during the three years ending on the purchase date of the residence for which the credit is claimed. Thus, someone who formerly owned a home, then rented for several years, would qualify for this credit. The purchase must be made on or after April 9, 2008 and before December 31, 2009.

Tax season is generally not a favorite for most individuals, but tax season can be particularly onerous if you are newly divorced or separated.  Despite your angst or anger, you are now required to think clearly, reasonably, and rationally in order to avoid common mistakes on your federal tax return.

One of the most vital decisions you need to make is which filing status you choose: married filing jointly or married filing separately. If you were separated but still legally married on December 31, 2008, those are your only two options. It is wise to figure out what you will owe under both scenarios and gain an understanding of the pros and cons of each strategy.  This may require more work on your part, but if it saves you hundreds or even thousands of dollars, then it is well worth the effort.

Question:

I want to know how to value options? I know this is a lot, but it’s driving me crazy. I am a small partner in a financial services firm sold in 2007. I can exercise an option beginning 2012. There is a minimum and maximum price to the option.

The minimum and maximum value differential is 4x. So it could be worth a little or worth a lot if the business grows a lot. This is a non-public company and the option value is based on a company revaluation (multiple of EBITDA) in the year I choose to exercise.

Since the sale in 2007, our business has fallen off the cliff due to the financial downturn, down 80%. Is it true that a court could decide the asset is worth the minimum and force me today to pay New Jersey half the value now based on a present value calculation? Or would they say - wait until 2012 and New Jersey gets half of whatever it is? Since the option is not a public company and I have to be employed to exercise, is it worth anything today? Am I forced to stay at the firm even if I do not wish to? Any help is much appreciated.

Many parents who find themselves in the midst of a dissolution action may have looming questions regarding tax obligations and entitlement to claims of tax credits or deductions. On July 2, 2008, regulations relating to a claim that child is a dependent by parents who are divorced, legally separated under a decree of separate maintenance, or separated under a written separation agreement, or who live apart at all times during the last six (6) months of the calendar year. These Income Tax Regulations may be found at 26 CFR part 1 and relates to section 152(e) of the Internal Revenue Code. These final regulations apply to taxable years beginning after July 2, 2008.

by Milandria King, LL.M of Cordell & Cordell, PC

Read Part 1

TIP #4:    Avoid the Child Support Issue of I.R.C. Section 71

Section 71 of the tax code provides that no portion of a maintenance payment can be fixed as child support. The definition of the word “fix” means that a reader would be able to precisely determine what portion of the payment constitutes alimony and which part of the payment may be labeled as child support. There need not be reference to a certain dollar amount in the document for a payment to be fixed as child support. See Sperling v. Commissioner, 726 F.2d 948 (2nd Cir. 1984).