So much is going on right now which is rapidly changing the trajectory of how we think, live, communicate and survive.
What were you carrying in your backpack of life prior to the current pandemic health and economic crisis?
If you were in the midst of transition via a divorce, death of a spouse, employment/unemployment, etc., this is the time to stay the course and zero in on activities that will help you stay on top of planning, preserving and protecting what is most important right now in terms of your finances, your family and your life.
Let’s get started.
The pressure is off to meet the April 15, 2020 tax filing deadline. The IRS has recently extended the deadline to file tax returns and to make payments until July 15, 2020. For those of you in the midst of divorce settlement negotiations or, if you are simply overwhelmed right now trying to juggle the new realities of what is going on, this is one less thing to worry about.
Please refer to the IRS website for this update and information for what to do after July 15, 2020.
If you are the spouse who could potentially be affected by having an overpayment on a jointly filed return that will end up being applied to some other past due obligation from your spouse or soon to be ex-spouse, then you will want to be prepared to protect this money by determining whether you qualify as an injured spouse.
Alternatively, if due to the unknown actions of your spouse or soon to be ex-spouse, a joint tax liability might be assessed by the IRS, it would be prudent to review the qualifications for innocent spouse relief which could result in removing all or part of the joint liability payments and penalties. Please refer to these IRS instructions for further information on the necessary requirements for the injured spouse and innocent spouse relief and related forms.
Your tax status for the IRS is determined as of December 31st of the tax year.
If your divorce is not final on that date, you are still considered to be married. Depending on the specifics of your situation you have the option of filing married jointly or married separately. Given the current tax extension policies for 2019 tax year, it would be prudent to consult your tax preparer to do the analysis and determine which filing status would be most beneficial. If your divorce is final on December 31st, you are not considered married and can either file as head of household or single. Again, as noted you would want to consult with your tax professional for guidance.
As we navigate through divorce or separation and other life transitions, there is often a lot of misunderstanding about access to health information, records and decision making when unexpected consequences of an illness strike you, your spouse, domestic partner or a loved one.
All too often it is assumed that marriage provides unlimited power to make decisions, even if you are in current divorce proceedings.
Again, make good use of your time during government-imposed shelter in place or similar policies and review your current documents or engage with a professional to create new ones if none are in place.
Estate Planning Attorney, Patricia De Fonte highlights an overlooked health form:
“As more and more hospitals and medical facilities refuse entry to non-essential personnel, HIPAA waivers are critical. HIPPA waivers allow a client to list the names of family members, friends, clergy, health care providers, or other third parties to whom they wish to have made their medical information available. If anyone would ask for medical information regarding a specific patient and their name is not listed on the HIPAA form, they would be denied access to this information.
Married clients do not automatically have this authority. These documents are necessary for all persons over the age of eighteen.” (emphasis added)
Find the HIPAA form for your state on eforms.
Additionally, it is important to make sure that you and your family have prepared health care directive forms and that these forms are also on file with your health care plan providers. The provisions for these forms vary by state so please consult Everplans to access specific information for your state of residence.
If you are starting to experience a sinking feeling that all the time spent on trying to come to a financial agreement regarding division of the marital assets is about to unravel right now, here are some key steps action steps to consider:
Now, let’s take a look at a few key areas.
The main issue in our current climate is quite frankly whether the higher wage-earning spouse is going to suffer the short or potentially long-term possibility of reduced employment, lay off or employment/business termination.
For my clients where negotiations included child and spousal support monthly payments that have already started or were slated to begin soon, we are returning to the post-divorce budget that was created early in our work together to make revisions. Questions for consideration include but are not limited to: How much of a shortfall can you handle without taking on extra work yourself and then having to juggle child care costs? Do living arrangement need to be altered from providing rent/mortgage to creating an agreement to live with friends/family for an agreed upon length of time?
If you have not created your budget, this would be a good time to do so as it is difficult to plan financially going forward with knowing where you stand. Here are some free tools to investigate:
Additionally, if your spousal support discussions concerned a buyout or lump sum agreement (this is an upfront, one-time payment to the recipient party, which is less than the equivalent of the present-day value of the payments over time), sorting out revisions might include adjustments to the calculations including adjusting the rate of return applied for present value, statutory number of years for payment, issues of offsets against other assets etc. Be smart about your decision and not emotional. If the renegotiated figure still keeps your budget on track and allows you to move forward, be prudent and realistic in your choice.
Very often, the bulk of the divorce financial allocations between parties are based upon the cash reserves remaining from the sale of the marital residence and/or other marital real estates.
If there is a delay in getting the property to market and/or there is a decrease in value, this can cause difficulties in sorting out support, reimbursements, offsets etc.
Some approaches for realigning strategy here could include moving up the timetable for sale or alternatively moving the timetable for a later time, reviewing the short term liability for a continued mortgage and tax payments (and possibly a schedule for reimbursements depending on which spouse is primarily responsible for the payments), or simply maintaining the status quo and keeping financial records in order.
Caution is the watchword here. No one can control the volatility of the market during times of crisis and therefore it is prudent to avoid financial transactions based on fear.
If your divorce negotiations have already resulted in a QDRO document being prepared, remain alert to the fact that realignments might need to be made and thus, stay in contact with the individual or firm involved in this process so that you remain aware of the impact of changes to distributions. (See this IRS explanation of QDROs)
Remain flexible and open to thinking outside of the box in order to reach a resolution during these uncertain times. Depending on your marital asset landscape, there may be alternative ways of dividing the pie.
The interesting thing about uncertainty is that it causes you to think. Take power from that thought process to focus on strategies that will allow you to move and protect and not be frozen and unproductive.
©2011-2023 Worthy, Inc. All rights reserved.
Worthy, Inc. operates from 45 W 45th St, 4th Floor New York, NY 10036