Tag Archive for: divorce

Tax Implications of Property Transfers During a Divorce

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Property division is usually a critical financial aspect of the divorce process. While the emotional aspects of divorce may take precedence in many cases, it is essential to consider the tax implications of property transfers during this time. A reliable family law attorney can help you make informed decisions and avoid potential financial pitfalls.

Tax Treatment of Different Types of Property in Alabama

  • Marital Home: When transferring the family home, you should be aware of the capital gains tax implications. If you sell the home, there is a potential capital gains tax exclusion as long as you meet certain criteria. Taking this into account, if one spouse retains ownership and sells it later, they might not be eligible for this exclusion.
  • Retirement Accounts: Transferring retirement accounts, such as 401(k)s or IRAs, typically requires a Qualified Domestic Relations Order (QDRO). Depending on the timing and method of withdrawal, there may be tax consequences and early withdrawal penalties.
  • Investment Properties: Transferring investment properties can trigger capital gains taxes. Be aware of the tax basis, potential depreciation recapture, and the timing of the transfer.

The tax implications of property transfers during a divorce can significantly impact your financial well-being. It is important to work closely with strategy-driven divorce attorneys who can provide legal guidance and help you save taxes depending on your specific situation.

Alimony vs. Property Transfers to Save Tax in Alabama 

Alimony payments are generally tax-deductible for the payer and taxable as income for the recipient. With the Tax Cuts and Jobs Act (TCJA) that took effect on January 1, 2019, there was a significant change in the tax treatment of alimony. For divorce agreements finalized after this date, alimony is no longer tax-deductible for the payer, and recipients no longer report it as income.

Property transfers, on the other hand, typically do not have immediate tax consequences. Moreover, understanding the long-term implications, such as capital gains on eventual sale, is important. The tax consequences of property transfers are often deferred until the recipient sells or disposes of the transferred assets. At that time, capital gains taxes and other potential taxes may apply, depending on the asset’s value and tax basis.

You should consult with a knowledgeable and experienced divorce attorney who specializes in divorce and tax matters. They can help you work through the complexities and make informed decisions.

Other Tax Factors to Consider During Property Transfer 

Cost Basis and Capital Gains

The cost basis of an asset is essentially the original value or purchase price of that asset. It serves as a reference point for determining capital gains or losses when the asset is sold or transferred.

When property is transferred during a divorce, the receiving spouse generally assumes the transferring spouse’s cost basis. This can impact capital gains taxes when the property is sold in the future. Properly documenting the transfer and retaining records is essential for accurate reporting.

If the recipient spouse eventually sells or transfers the property, they may be subject to capital gains tax based on the carryover basis. This means that the original purchase price and any improvements made by the transferring spouse will factor into the calculation of gains.

Depreciation Recapture

If rental or business property is involved in the divorce, be aware of potential depreciation recapture. Depreciation claimed on the property over the years might need to be recaptured as income when the property is sold or transferred.

When depreciation recapture occurs, the IRS “recaptures” some of the previously deducted depreciation by taxing it as ordinary income rather than as a capital gain. This means the recaptured depreciation is subject to ordinary income tax rates, which can be higher than capital gains tax rates.

In many divorce property transfers, the receiving spouse typically assumes the transferring spouse’s adjusted basis, which includes any depreciation deductions taken by the transferring spouse. It is vital for both spouses to maintain detailed records of the depreciation claimed on the property during the marriage. These records will be essential for accurately calculating any potential depreciation recapture in the future.

Tax Consequences for Transferring Jointly Owned Property in Alabama

The specific tax consequences can vary depending on the type of property and how it is being transferred. If the jointly owned property is your family home, you might be eligible for a capital gains tax exclusion. Under current tax laws, if you meet certain criteria, you can exclude up to $250,000 (or $500,000 for a married couple filing jointly) in capital gains when selling the home. To qualify, you typically need to have owned and lived in the home as your primary residence for at least two of the last five years.

For other jointly owned real estate assets, such as investment properties or vacation homes, the tax consequences can be different. The gain from the sale of these properties may be subject to capital gains taxes. The tax rate can vary based on factors like your income level and the length of time you have owned the property.

Get a Knowledgeable and Compassionate Family Law Attorney on Your Side

The experienced divorce attorneys at Wilkins, Bankester, Biles & Wynne, P.A. have a deep understanding of family law, ensuring that your case is handled with professionalism. Our lawyers recognize that every divorce is unique and create strategies based on your specific needs and goals. Schedule your case review with our lawyers today. Call us at 251-928-1915 or contact us online.

Tax Implications of Property Transfers During a Divorce

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Property division is usually a critical financial aspect of the divorce process. While the emotional aspects of divorce may take precedence in many cases, it is essential to consider the tax implications of property transfers during this time. A reliable family law attorney can help you make informed decisions and avoid potential financial pitfalls.

Tax Treatment of Different Types of Property in Alabama

  • Marital Home: When transferring the family home, you should be aware of the capital gains tax implications. If you sell the home, there is a potential capital gains tax exclusion as long as you meet certain criteria. Taking this into account, if one spouse retains ownership and sells it later, they might not be eligible for this exclusion.
  • Retirement Accounts: Transferring retirement accounts, such as 401(k)s or IRAs, typically requires a Qualified Domestic Relations Order (QDRO). Depending on the timing and method of withdrawal, there may be tax consequences and early withdrawal penalties.
  • Investment Properties: Transferring investment properties can trigger capital gains taxes. Be aware of the tax basis, potential depreciation recapture, and the timing of the transfer.

The tax implications of property transfers during a divorce can significantly impact your financial well-being. It is important to work closely with strategy-driven divorce attorneys who can provide legal guidance and help you save taxes depending on your specific situation.

Alimony vs. Property Transfers to Save Tax in Alabama

Alimony payments are generally tax-deductible for the payer and taxable as income for the recipient. With the Tax Cuts and Jobs Act (TCJA) that took effect on January 1, 2019, there was a significant change in the tax treatment of alimony. For divorce agreements finalized after this date, alimony is no longer tax-deductible for the payer, and recipients no longer report it as income.

Property transfers, on the other hand, typically do not have immediate tax consequences. Moreover, understanding the long-term implications, such as capital gains on eventual sale, is important. The tax consequences of property transfers are often deferred until the recipient sells or disposes of the transferred assets. At that time, capital gains taxes and other potential taxes may apply, depending on the asset’s value and tax basis.

You should consult with a knowledgeable and experienced divorce attorney who specializes in divorce and tax matters. They can help you work through the complexities and make informed decisions.

Other Tax Factors to Consider During Property Transfer

Cost Basis and Capital Gains

The cost basis of an asset is essentially the original value or purchase price of that asset. It serves as a reference point for determining capital gains or losses when the asset is sold or transferred.

When property is transferred during a divorce, the receiving spouse generally assumes the transferring spouse’s cost basis. This can impact capital gains taxes when the property is sold in the future. Properly documenting the transfer and retaining records is essential for accurate reporting.

If the recipient spouse eventually sells or transfers the property, they may be subject to capital gains tax based on the carryover basis. This means that the original purchase price and any improvements made by the transferring spouse will factor into the calculation of gains.

Depreciation Recapture

If rental or business property is involved in the divorce, be aware of potential depreciation recapture. Depreciation claimed on the property over the years might need to be recaptured as income when the property is sold or transferred.

When depreciation recapture occurs, the IRS “recaptures” some of the previously deducted depreciation by taxing it as ordinary income rather than as a capital gain. This means the recaptured depreciation is subject to ordinary income tax rates, which can be higher than capital gains tax rates.

In many divorce property transfers, the receiving spouse typically assumes the transferring spouse’s adjusted basis, which includes any depreciation deductions taken by the transferring spouse. It is vital for both spouses to maintain detailed records of the depreciation claimed on the property during the marriage. These records will be essential for accurately calculating any potential depreciation recapture in the future.

Tax Consequences for Transferring Jointly Owned Property in Alabama

The specific tax consequences can vary depending on the type of property and how it is being transferred. If the jointly owned property is your family home, you might be eligible for a capital gains tax exclusion. Under current tax laws, if you meet certain criteria, you can exclude up to $250,000 (or $500,000 for a married couple filing jointly) in capital gains when selling the home. To qualify, you typically need to have owned and lived in the home as your primary residence for at least two of the last five years.

For other jointly owned real estate assets, such as investment properties or vacation homes, the tax consequences can be different. The gain from the sale of these properties may be subject to capital gains taxes. The tax rate can vary based on factors like your income level and the length of time you have owned the property.

Get a Knowledgeable and Compassionate Family Law Attorney on Your Side

The experienced divorce attorneys at Wilkins, Bankester, Biles & Wynne, P.A. have a deep understanding of family law, ensuring that your case is handled with professionalism. Our lawyers recognize that every divorce is unique and create strategies based on your specific needs and goals. Schedule your case review with our lawyers today. Call us at 251-928-1915 or contact us online.

 

What to do When Getting a Divorce is Your New Year’s Resolution

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To some, it may seem strange to have divorce as a New Year’s resolution. To anyone who has ever been trapped in an unhappy marriage, it makes complete sense. No matter how long you’ve been considering it or how many times you have gone back and forth, you’ve decided that 2023 is the year when you will divorce and start over. Before you file the paperwork, though, it’s crucial to get everything ready and in order. Doing so can prevent unnecessary delays and complications.

Looking for reliable legal advice as you navigate your divorce? Call Wilkins, Bankester, Biles & Wynne at 251-928-1915 to set up a time to talk to our team.

Know the Divorce Laws in Your State

Before you make any important decisions, make sure you know the divorce laws in your state of residency. Some of Alabama’s divorce laws are significantly different from those you’ll find in other states, and you should be prepared. For example, Alabama allows fault-based divorce. Those who successfully secure a fault-based divorce may have the upper hand when it comes to spousal support and the division of assets. With a quick review of divorce laws, you’ll know about any potential issues that may arise.

Have a Financial Plan in Place

There’s really no way around it—divorce can be expensive. Even if you and your spouse navigate the important issues quickly and incur minimal legal expenses, the cost of living on your own with one income will likely be a challenge. It’s important to know how you will get through the time between filing for divorce and finalizing the divorce. During this timeframe, the court often establishes temporary child support and spousal support orders to ensure that both spouses can make ends meet.

You should also take steps to separate your finances to some degree if you currently share everything. This does not mean taking joint money from the account. That is a move that shows bad faith and can really sabotage you in court. You can, however, put money aside to pay a lawyer’s retainer fee and cover basic expenses. The full division of the marital assets will be handled during negotiations, but in the meantime, you need to be able to feed, clothe, and support yourself.

Prepare for Your Children’s Needs

If you and your spouse have children, know that this time will likely be incredibly difficult for them. Even if you do everything perfectly and limit the emotional damage, they will still struggle with their lives being uprooted. Be proactive about meeting their needs by looking into pediatric counselors, figuring out their support network, and finding ways to preserve their routines and activities throughout the entirety of the divorce process.

Ensure That You Have the Support You Need

Divorce can be mentally and emotionally draining, even if it has been the obvious outcome for months or years. Be prepared and know whom you can turn to when things get hard. Your support network may include close family members, best friends, and mental health professionals. Knowing whom you can trust before you need to ask for help is much easier than trying to figure it out in the middle of a breakdown.

Get Your Legal Team in Order

No matter what the circumstances of your divorce are, it is crucial to protect yourself with the help of an attorney. Even when both parties agree on the terms of the divorce, having an attorney handle the paperwork for you and explain the consequences of different decisions can prevent you from making any big mistakes.

It’s okay if you’re not ready to move forward with a divorce right away; scheduling a consultation allows you to understand your options and figure out what other steps you need to take to prepare for what comes next.

Contact Wilkins, Bankester, Biles & Wynne to Start the Process

Although divorce is hard, you can make it a little bit easier on yourself with the right legal team. At Wilkins, Bankester, Biles & Wynne, we help clients navigate this painful time with dignity and privacy. Schedule your consultation now by calling our Fairhope office at 251-928-1915 or sending us a message online.

What the Rise in Gig Economy Means for Divorce

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There’s no question that COVID-19 has had a profound impact on the economy and how people view work. While gigs and side jobs have always been an option, the pandemic saw a huge number of people ramp up their earning opportunities or completely change how they earn an income.

If you are pursuing a divorce and you or your partner earn money in a side hustle, you may find that some aspects of your divorce are more complicated than they are for those with conventional employment. Learn more by calling Wilkins, Bankester, Biles & Wynne at 2251-928-1915.

Side Hustles Are Now the Norm

Side hustles used to be reserved for those who couldn’t make quite enough in their day job, but they have become increasingly common in recent years. Even people with thriving careers often supplement their income with a side gig.

Options vary widely and include:

  • Driving for Uber, Lyft, or another rideshare company
  • Delivering food for Grubhub, UberEats, Doordash, or other similar services
  • Delivering goods and groceries for companies like Instacart
  • Babysitting or providing nannying services
  • Dog walking and pet care
  • Freelancing for writers, artists, and coders

Unfortunately, multiple income streams can also complicate the divorce process. Some of the issues you may run into are detailed below.

Calculating Spousal Support and Child Support

First, it can make it incredibly difficult to come to an agreement on appropriate child support and spousal support numbers. Child support in Alabama looks at the income earned by both parents, so either parent having a fluctuating income can make it difficult to create an order that’s truly fair.

This is especially true if a side gig is one parent’s only or sole source of income. If one earner is always at risk of losing all of their income without any option for unemployment, that may change what is considered fair.

Spousal support is difficult if either spouse has a side gig. Consider a spouse who has to pay spousal support. They may claim that their gig income is unreliable and unsteady, so it should not be calculated with their regular income source for alimony purposes.

However, the receiving spouse may claim that leaving that amount out would significantly affect the order. If the receiving spouse has a side gig, the paying party may argue that they don’t actually need spousal support.

Under-the-Table Work

While many side gigs require you to sign up using your SSN and fly appropriate tax documents, there are some that pay cash under the table. Some restaurants and bars pay servers or bartenders cash to work occasional shifts, and babysitting is often not reported on taxes.

Unfortunately, if one party does not report a source of income, that may force the other parent to pay more in child support. There are ways that the court can prove that one spouse is earning undeclared income, so discuss this issue with your attorney as soon as possible if you think it’s an issue in your divorce.

Challenges With Child Custody and Visitation

It should come as no surprise that child custody and visitation schedules are often very difficult to work out when one or both parents engage in gig work. Children thrive on routine and a schedule, but when one parent doesn’t have a set schedule, they often struggle to provide that stability for a child.

If the non-custodial parent primarily earns money through a side gig, they may be unavailable for their visitation time if they are expected to work or pick up tasks during that time. This puts enormous stress on the custodial parent and can cause the parent-child relationship to deteriorate. For this type of arrangement to work, there generally needs to be some financial sacrifice on the part of the gig-working parent and some flexibility on the part of the custodial parent.

Find Out How Wilkins, Bankester, Biles & Wynne Can Help

Regardless of which factors make your divorce a challenge, our team is ready to help you. We’re ready to talk about your divorce and what you hope to get out of it. Call our Fairhope office at 251-928-1915, or send us a message online now.

Helpful Tips for Dealing with a Divorce During the Holidays

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If you’re in the midst of a divorce just as the holiday season starts, you’re not alone. The holiday season is actually a fairly common time for couples to decide to part ways. In some cases, it’s a split that has been coming for a long time and one party just can’t go through another Christmas pretending everything’s okay. In other cases, the joy of the holiday season shows one spouse the happiness they are missing in everyday life.

No matter what has led to your divorce, this Christmas season will undoubtedly be hard on you. At the very least, don’t go through this alone. The team at Wilkins, Bankester, Biles & Wynne is here to provide the strong legal advice and support you need during this difficult time. Give us a call at 251-928-1915 to set up a time to talk to a divorce attorney.

Get Your Legal Needs Squared Away

First, make sure you are protecting yourself legally. If your ex already has a lawyer and you don’t, waiting until the holiday season is over could put you behind. Even if you decide to take things slow while getting through Christmas and the New Year, you at least want to have someone you can call if your ex-partner tries to pull something. No matter what time of year it is, we’re here to listen to your needs and get started on your case.

Consider Putting a Pause on Proceedings Until the Holidays Are Over

Once you have the must-have discussions of the season—who will have the kids and when, if you’ll give the kids gifts together or separately, and so on—think about how you want to handle the legal side of your divorce.

Some people take a little break from the legal process, particularly if it’s been a mental drag on them for months. This option is easier if your divorce is relatively low-stress and non-adversarial, as your ex is less likely to try to sneak something past you. But if your divorce is highly adversarial or you’ve already caught your partner trying to abuse the process for their benefit, you probably just want to plow ahead and keep going at full speed during the holidays.

Talk to Loved Ones to Figure Out Your Support Network

Your mental health may hinge on having loved ones you can rely on when things get tough. Know whom you can count on and for what. You may have some friends that are always just a phone call away, and those who are always free for a cup of coffee if you need to get out of the house while your kids are with your ex. You may have a friend who has also been through divorce and is there to give useful advice. Have a plan ahead of time so you can take action when you’re in distress.

Give the Best Gifts Ever—to Yourself

You’ve spent a number of Christmases pouring your heart and soul into gifts for your ex. Even if you still have to buy them gifts “from the kids,” you don’t have to give them anything from you. Instead, take this time to give yourself a well-deserved gift. What’s something you always wanted during your marriage but never were able to buy? Treat yourself and engage in self-care this holiday season.

Think About the Memories You Will Want to Look Back On

Right now, it may be hard to see ahead to a time when your life isn’t in upheaval. But this too shall pass, and when it does, you will look back at this first Christmas you had as a single person.

What do you hope your children remember from that time? How do you want them to see you? Knowing that much happier times are ahead, try to create the holiday season that you and your children need.

Choose Wilkins, Bankester, Biles & Wynne for Your Divorce Case

With the right legal team by your side, divorce can be less stressful and painful. Find out how we can help and what we offer. Set up a consultation with us now by reaching out online or calling our Fairhope office at 251-928-1915.

How Social Media Activity Can Impact a Divorce Case

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Instagram, Facebook, Tiktok, Snapchat—the list of prevalent social media apps grows longer by the year. While it’s a great way to share your life with loved ones and stay connected, it can also be your Achilles heel during a divorce. Find out the many ways that social media can affect your divorce case, and when you’re ready to discuss your legal needs in greater detail, call Wilkins, Bankester, Biles & Wynne at 251-928-1915 and set up a consultation.

Proof of Infidelity

Remember, infidelity can sink your divorce case. If a divorcing spouse’s social media has proof or evidence of the affair that ended their marriage, they could be giving away part of their share of the marital estate. Alabama is one of just a few states that allow fault-based divorces, and an affair is one of the permitted grounds for divorce. Photos, location tags, sappy status updates—they can all work against the poster.

Hidden Assets

Hidden assets are a big fear in many divorce cases. While most people with hidden assets go to great lengths to actually hide them, some people are a bit more careless. A boat purchased with hidden money, expensive “gifts” given to family members (only to be returned after the divorce is final), and cryptocurrency are fairly commonly seen on social media. It’s easy for a divorce attorney or angry ex to screenshot these posts and use them to prove hidden assets, or at least give a forensic accountant a starting point for finding them.

Parental Alienation

When parents divorce, they should put their kids first and strive to maintain a positive co-parenting relationship with the other parent. Unfortunately, this isn’t always how it works out. When one parent thinks that they have more rights to their child than the other parent, they may stoop to new lows to damage the other parent’s relationship with the child.

Parental alienation is often sneaky and difficult to track, but some parents make it easy to uncover their plans. Parents with a need for validation may post to social media about how terrible their ex is and what an unfit parent they are, which is concerning on its own. However, it’s not parental alienation.

But if they go on to post about negative things their child has said about the other parent, how they have encouraged or supported those statements, and other evidence of their efforts to destabilize the relationship, that could really hurt them in court.

Unfit Parenting

What about when one parent actually is putting their child in danger? This, too, is often found on social media. Someone who has no trouble exposing their child to drugs, drinking, and dangerous activities is likely to be friends with people who have the same beliefs. They may then share photos on social media for laughs and upvotes from their friends. These types of posts can be devastating to a parent’s custody case.

No matter how carefully they try to cover their tracks or lock down their privacy settings, it is all too easy for a determined parent or attorney to get access anyway. With evidence of unfit parenting, the other parent can make a case for primary or sole custody.

Protect Your Social Media

In some cases, social media can be helpful to your divorce case. If you discover useful information about your ex or gain some footing in your case, you may have some leverage. On the other hand, your own social media activity could harm your divorce case.

Even if you don’t post anything incriminating or outright inappropriate, it is very easy for your words and photos to be misconstrued. Don’t be surprised if you see your ex’s attorney taking your posts out of context or otherwise looking for proof that you are unfaithful, an unfit parent, or hiding assets from their client. Limit your social media activity during divorce and double- or triple-check posts before hitting the “post” button.

Discuss Your Family Law Case with Wilkins, Bankester, Biles & Wynne

Ready to take the next step in your divorce case? We’re here to help you fight for what matters most to you. Call us at 251-928-1915 or connect with us online to get started.