- Collaborative Practice Tips
- How To Help Your Children During Separation and Divorce
- The Standard of Value
- Why Is Divorce So Stressful?
- Adult Children of Divorce: The Invisible Children
- How To Talk With Your Adult Children About Your Upcoming Separation or Dissolution of Marriage
- How To Talk With Your Minor Children About Your Upcoming Separation or Dissolution of Marriage
- How No-Court Divorce Benefits Children
- What to do When Your Parents Divorce and You’re Already a Grown-Up
- Yikes! Mom or Dad is Dating Again: How to Avoid a Family Rift
- Tracing Separate Property in a Family Law Case: From an Accountant’s Perspective
- Divorce and Taxes
- Can Attorneys’ Fees Be Tax Deductible?
- Sample Letter: Tax Deductibility of Attorneys Fees
Frequently Asked Questions
As an accountant and CDFA™, my firm has been involved in many cases of tracing the separate property of an individual spouse throughout a marriage. One such case involved almost two million dollars in deposits over a ten-year period in thirteen different accounts. The scope of the assignment was to show that the community did not have an interest in one particular bank account, regardless of how title was held.
While this process can seem tedious and overwhelming, we have compiled a list of tasks, which make the tracing faster and easier. The following process was followed in resolving the above-mentioned case, and represents the general system used in all cases:
- Inventory all pertinent documents.
- Determine what documents are missing and or still needed.
- Prepared a document request.
- Schedule each disbursement and each deposit for all related bank accounts.
- Analyzed each bank account deposit by deposit to determine the source of funds.
- Determine if any deposits are transfers between bank accounts.
- Analyze each disbursement to determine if it was a transfer between accounts.
- Whenever a direct tracing is not possible, you have to look at all documents and possibly find a corresponding date and amount.
- Once all bank accounts had been analyzed:
- Prepare a summary of the bank activity showing
- Total deposit and withdrawals
- Identify origin of non-transferred funds
- Identify where non-transferred funds were spent
- Inventory all pertinent documents.
- Prepare a schedule of the community bank account
- Schedule community income
- Schedule community living expenses
- Schedule other disbursements
Once all of these tasks are completed, step back and look at the work and ask: “Does this make sense?” When I reviewed my work, looking at the total traceable funds and compared it to the community standard of living, I was able to show the funds were not community (owed by both the husband and wife).
While you will need to determine which records are applicable for your individual case, this basic process has been extremely successful in tracing separate property.
Many issues need to be addressed whenever two people decide to get divorced. One major issue is income taxes.
Some of the more common questions are:
- Do we file jointly or separately?
- Do we have to allocate the income, and if so, how?
- Do we have to allocate the expenses, and if so, how?
- My spouse is self-employed. Who pays the self-employment taxes?
- Who gets credit for the estimated tax payments?
- We have one child. Who gets the deduction?
- We have more than one child. Can we split the deduction?
- I paid a lot of attorney and accounting fees. Can I deduct them?
The following is a list of some of the issues that a Certified Divorce Financial Analyst and tax professional can bring to the table that attorneys and the participants in a divorce often overlook. This list is not all-inclusive:
- Discounting Epstein credits for the tax benefits
- Weighing the risks of filing a joint return
- Considering the child support trap of IRC � 71
- Not fighting over the dependency exemption when the client can’t use it
- Considering if both can be head of household
- Not assuming that the capital-gains tax is based on the client’s share of the proceeds
- Evaluating whether attorney’s fees can be deductible or capitalized
- Not considering the tax traps in dividing stock options.
There can be significant tax implications when the parties divorce, you owe it to yourself to consult a financial professional (forensic accountant, CPA, and/or CDFA) to make sure you and your attorney understand all of the financial and tax implications of your divorce.
- Collaborative Divorce Solutions of Orange County (cdsoc.com)
- Collaborative Practice of California (cpcal.com)
- International Academy of Collaborative Professionals (IACP)