Divorce & Taxes | Callagy Law | Paramus, NJ | Bergen County

The following article was written by Callagy Law’s Legal Team, and will focus on many common questions and concerns surrounding new developments, legal matters, the court system, and other procedures within the area of Family Law.

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In the divorce context, all assets are not created equal and the Internal Revenue Service can alter what you thought were rather straight forward provisions for child support and alimony.

Consider the “child contingency rule” regarding alimony.  IRS Publication 504 warns that if alimony payments are reduced or end around the same time as a child-related event, all alimony payments that were deductible to the payor and taxable income to the payee may be reclassified as child support instead of alimony.  The payor would lose the deduction and pay retroactive taxes and the payee would receive a refund of taxes paid.  A contingency relating to the child include (1) becoming employed (2) dying; (3) leaving the household; (4) leaving school; (5) marrying; or, (6) reaching a specified age or income level.   This reclassification can be avoided if it can be established that any reduction in alimony was determined independently of a child-related contingency, which would be the normal circumstance.  For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony.

Also consider the income tax burden of certain assets that are being divided up as part of a divorce settlement.  Investment accounts that hold stocks, mutual funds, etc., may carry different tax basis which may result in different unrealized gains or losses which can result in significantly different capital gains taxes.  Investment assets must be viewed on a tax-neutral basis to assure an equal distribution and sharing of capital gains taxes.  The $1 million dollar investment account, which may have unrealized gains that will subject to capital gains taxes is not equal to $1 million in cash and an straight up off-set would be an unequal distribution of the assets.

Your family lawyer should have a grasp and understanding of these tax concepts and be able to navigate you through such issues to assure that the distribution of assets is fair and equitable.

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Supreme Court upholds Agreement terminating alimony upon showing of cohabitation

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The following article was written by Callagy Law’s Legal Team, and will focus on many common questions and concerns surrounding new developments, legal matters, and other procedures within the practice area of Family Law. Our mission is to answer any questions and give knowledge to many different aspects of these matters.

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In the recently published opinion Quinn v. Quinn (A-5-14, decided May 3, 2016), the Supreme Court upheld the parties’ divorce settlement agreement which provided for a termination of alimony upon cohabitation.  The majority’s decision is not surprising given the strong public policy favoring agreements and, absent a showing of fraud, coercion or overreaching, agreements will be enforced as written.  The wrinkle in the dispute was that, absent the parties’ agreement calling for an outright termination of alimony upon cohabitation, cohabitation may not have resulted in a termination of the obligation and the court would have had the discretion to modify or suspend the obligation.  In fact, the trial court in Quinn v. Quinn did suspend the alimony obligation for the period of cohabitation, rather than terminating the obligation in total, reinstating the obligation as of the date the cohabitation ended.  The trial court’s decision was affirmed on appeal, but the Supreme Court reversed, finding that the trial court was bound to enforce the parties’ agreement, which was entered freely, voluntarily and with the advice of independent counsel.  By failing to enforce the terms of the agreement, the trial court effectively created a different agreement not contemplated or intended by either party.

Two (2) of the Supreme Court Justices dissented noting the severe financial consequences to Ms. Quinn as a result of the termination of the alimony obligation.  The dissent believed that the provision of the parties’ agreement mandating a termination of alimony upon cohabitation is contrary to public policy and would effectively “pauperize” the ex-wife.  The dissent cites a lack of evidence of any financial or economic benefit received by the ex-wife as a result of the cohabitation.  The dissent viewed the anti-cohabitation provision in the parties’ agreement “as a means to oppress an ex-spouse,” viewing the provision as requiring the ex-wife to choose between her right to alimony and her “desire to enter into a loving relationship.”

The majority opinion, in addressing the dissents concern regarding the economic consequences, acknowledged the “serious” financial consequences to the ex-wife resulting from the termination of alimony.  However, the majority clearly felt that the ex-wife understood without doubt that her conduct could result in a termination of the alimony obligation, yet she proceeded to cohabit anyway.  Interestingly, Ms. Quinn stopped cohabitating just after her ex-husband sought to terminate the alimony obligation.  Yet, the majority found that the cessation of cohabitation was of no moment and irrelevant.  Will this open the door for similar applications to terminate or modify alimony obligations based upon cohabitation that existed months or maybe even years earlier, but subsequently ended?

The Quinn v. Quinn decision exemplifies the clash of equities often experienced in family law disputes.  Certainly Mr. Quinn believes that enforcement of the bargained for agreement was equitable and the majority of the Supreme Court agreed.  If nothing else, the Quinn decision should serve as a reminder that notions of equity and fairness are subject to judicial interpretation.

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The Team at Callagy Law hopes the information in this article was helpful in either your personal or professional life.. Callagy Law, is a multidisciplinary law firm, headquartered in Paramus, NJ owned and operated by Sean Callagy. We are committed to providing legal representation and advice to our clients at additional law offices located across the United States. Please note that the information posted here should not be used as a legal argument of defense. If you find yourself needing legal advice pertaining to your unique situation, you can contact us at here. Feel free to search us on Facebook, Twitter or LinkedIn! Additionally you can subscribe to our daily videos on YouTube.

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Why you actually need a divorce lawyer?

Choosing to get a divorce is one of the most difficult decisions of marriage life. But if you have made the decision then it is really very important that you do it properly with complete care. In the divorce, you would need to follow various documentation and legal procedures which will definitely require lots of time as well as lots of knowledge to get proper understanding of this matter.

This is not a simple and small thing so it is important that you take part in all the procedures and properly understand every single thing to maintain the efficiency and correctness. This could be difficult for an individual or even for the couple who have taken the decision of divorce. So, the divorce lawyer will play really very assistive and effective role in this situation.

There are thousands of benefits of considering divorce lawyers such as professionalism, efficiency and ease. And most importantly, you will also get consultancy service where the lawyer will analyze the divorce situation and will help clear things and situations for both spouses. This will help couple to understand the situation and properly see the scenario just the way it is. Sometimes the misunderstandings can lead to tremendous disasters in the marriage life so the divorce lawyer can also help you to understand such situations and resolve the issues efficiently.

Most importantly, sometimes when couple take a divorce without any kind of professional advice then they get in future troubles. It is quite possible that you might face issues in the future due to one ignorance of present time in divorce procedure so if the divorce is final then make it proper and necessarily consider hiring a divorce lawyer for this purpose because it will help you to clear things up and complete all the legal procedures efficiently that are necessary for divorce. Mainly, the divorce lawyer will save lots of your time and will help you to get quick and reliable results as well.

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When you’re faced with legal issues involving your family, you need attorneys who are discreet, compassionate, and fair-minded. With family issues, no second should be wasted and no stone should be left unturned: These are decisions that will shape your future. Our attorneys are sensitive to your concerns and responsive to your needs. We know what’s at stake and dedicate ourselves to carefully resolving your family law issues. Whether it’s divorce, child custody, adoption, or premarital agreements, you deserve the special attention of the experienced, results-driven attorneys at Callagy Law.

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