Social Security:
If you are divorced, your ex-spouse can receive benefits based on your record (even if you have remarried) if your marriage lasted 10 years or longer; your ex-spouse is unmarried; your ex-spouse is age 62 or older.
If the benefit that your ex-spouse is entitled to receive, based on their own work, is less than the benefit they would receive based on your work; and you are entitled to Social Security retirement or disability benefits, Social Security will pay your ex- spouse the higher amount.
- If you have not applied for retirement benefits, but can qualify for them, your ex-spouse can receive benefits on your record if you have been divorced for at least two years.
The payment of Social Security benefits has no effect on the amount of money you
receive from Social Security.
Example:
As a couple, Joe and Sally were set to receive $3,000/month in social security benefits. Now divorced, Sally is set to receive $1,400/month in social security benefits on her own. Sally can opt to receive the social security benefits she was entitled to through her ex-spouse: $3,000/month / 2 = $1,500/month. Joe’s social security benefits are not impacted.
Retirement accounts:
401(k), 403(b), TSP and other qualified retirement accounts can be divided into separate accounts. If done correctly there is no taxable event on the transfer. Any subsequent withdrawals would be taxable and, depending on your age, could be subject to an early withdrawal penalty of 10%. In order to effect this transfer a QDRO (qualified domestic relations order) must be submitted to the plan custodian. It is essential to ensure the plan administrator will accept the QDRO.
IRA’s and Roth IRA’s: pursuant to the divorce decree (the division must be in the divorce decree) both IRA and a Roth IRA can be split into separate accounts. If properly completed there would be no tax on the transfer.
Splitting an account: If a property division order awards an interest in your account to your ex-spouse or former registered domestic partner, your ex-spouse or ex-partner will have the legal right to a portion of any retirement payments you receive.
Your ex-spouse or ex-partner is entitled to receive their portion of retirement payments in a separate retirement account that is created by splitting your retirement account.
No payment will be made to your ex until you retire, withdraw contributions or die. At that time, DRS will make payment directly to your ex-spouse or ex-partner.
Alimony & Child Support
Spousal maintenance (alimony): until January 1, 2019 alimony paid is deductible by the payer and is included as income to the recipient. Effective January 1, 2019 it will be neither deductible nor counted as income.
Child support: Washington state has a mandatory child support schedule. The amount is based on the ratio of income of each person to the total. Each person is responsible for their percentage times the state mandatory schedule (wife has $100,000 income husband has $50,000 income wife would be responsible for two thirds of the child support).
Childcare credit: the recent tax act of 2018 increased the childcare credit up to a maximum of $2000. Only the custodial parent can take this credit and only if certain criteria is met. Child work related day care expenses can only be deducted by the custodial parent. The custodial parent can also claim head of household when filing their income tax.
Splitting/selling a home
A transfer of property between spouses is not a taxable event if it is “incident to divorce” (occurs during marriage or within one year after the divorce) or “cessation of marriage” (pursuant to divorce or separation decree or occurs not more than six years after the termination of the marriage) If you lived in your house as a principal resident for 2 out of 5 years you can exclude, as a married couple up to $500,000 of gain if you sell the house. A single person can exclude $250,000 of gain.
Example:
House Fair Market Value: $1,000,000
Purchase cost: 400,000
Total gain: 600,000
Marriage exemption: -500,000
Taxable gain: 100,000
The gain would be subject to capital gains tax
When you contemplate divorce there are many financial considerations which must be taken into account. The above information is provided to identify some of the major tax aspects of divorce.
If you have any questions please contact us at
Dick@emeraldcitydivorcesolutions.com or call 425-774-6721
Dick Harsin is NOT AN ATTORNEY AND DOES NOT PROVIDE LEGAL
ADVICE. All information he provides is financial in nature and should not be
construed or relied upon as legal or tax advice. Individuals seeking legal or tax
advice should solicit the counsel of competent legal or tax professionals
knowledgeable about the divorce laws in their own geographical areas.
Divorce financial planning is a fee-only process that does not involve investment
advice or securities or insurance transactions.