Questions about Finances and Taxes

Q: Why should we work with a neutral accountant for our Divorce?
A: neutral accountant looks at the entire tax picture for both partners and crafts a strategy that helps them both minimize tax and maximize disposable income. If both partners go to separate accountants they will most likely end up paying more in taxes than necessary.

Q: Why should we "tax effect" our assets before we divide them?
A: If one partner is getting an investment property worth $500,000 they will be faced with a capital gains tax of 20% when the property is sold. Therefore, that asset is truly only worth $400,000. That person will be losing $100,000 if taxes are not taken into account before dividing them.

If a couple does not have assets that exceed $250,000, it usually not necessary to "tax effect" the assets before dividing them.

Q: Is it necessary to use an accountant from Alpha if we have an accountant that we both trust?
A: We recommend using an Alpha accountant for two very important reasons. First, Alpha accountants keep current on Divorce law which affects important financial decisions like support and asset values. Most accountants only know IRS law which is quite different. Secondly, Alpha accountants are truly neutral so there is no chance that they will favor one person over the other.

Q: What are the 2007 standard deductions?
A: For singles, the new deduction is $5,350 up $200 from 2006; and $10,700 for married couples filing jointly, which is an increase of $400 from 2006.

Q: Do I need to notify the IRS if I get a divorce?
A: You should report your legal separation or divorce to the IRS to establish your separate financial status, particularly if you previously filed joint returns in the past. You may do so by sending a statement along with IRS form 8822 (change of address). Send the form to the IRS center where you usually filed your return (all IRS service centers addresses are on page two of this form).

Q:Will the "innocent spouse" rule protect me from tax liabilities that my ex incurred when we filed jointly in the past?
A:Many married couples choose to file a joint tax return because of the benefits this filing status allows. Both parties are jointly and individually responsible for the tax and any interest or penalty due on the joint return even if they later divorce, even if one party was pulling shenanigans that the other knew nothing about. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. One spouse may be held responsible for all the tax due. Luckily, the so-called innocent spouse relief may limit your liability for taxes that were understated due to information your ex provided. If you are divorced, legally separated, or living apart for at least 12 months, innocent spouse rules may also limit your liability for unpaid taxes to your own individual liability.

Questions about Qualified Domestic Relations Orders (QDRO)

Q: Why Do I Need A QDRO?
A: Both you and your spouse (or former spouse) have certain rights to benefits under a particular retirement plan. The person who earned the retirement benefit through his or her employment is called the "participant." The other person is referred to as the "alternate payee." Federal laws governing retirement plans prohibit a plan from paying benefits to anyone other than the participant-unless otherwise directed to do so under a QDRO. Accordingly, a QDRO allows the plan to pay benefits to the alternate payee.

Q: What is a QDRO?
A: Qualified Domestic Relations Order (commonly known as a QDRO) is a special Order for dividing most retirement plans including pensions, 401(k)s, 403(b)s, and deferred income plans. These Orders require the approval of both the Plan Administrator as well as the Court.

Q: How does it Work?
A: In the QDRO process, the approval of the plan administrator is the most important. The Administrator is looking for language specific to the plan regarding the proposed division. QDRO's can take up to 18 months to be put into place. One company's QDRO is not the same as another company's QDRO. Each is individual and particular to the plan and company. The QDRO process does not have to be overwhelming and there are steps you can take to decrease the length of time a QDRO takes. The first thing each participant should do is inquire within their company to see if the company has a sample QDRO that has the language that is specific to them. Another thing that will speed the process up is obtaining pre-approval of the QDRO from the plan administrator. By getting the QDRO pre-approved, a party will then only have to file with the Court one time for entry of the Order. Some companies do not provide sample QDRO's and/or do not pre-approve the QDRO. In those situations, the process can take longer especially if the original Order, which is entered, needs to be amended for language.

Q: What could happen if I do not get a QDRO done?
A: Without a QDRO you may lose a substantial amount of money and jeopardize your future security.

To learn more about "Qualified Domestic Relations Order visit the United States Department of Labor website at http://www.dol.gov/ebsa/publications/qdros.html.