This document provides guidance on financial issues to address at the initial meeting with a divorce client. It recommends determining all sources of income, assets, and liabilities for both spouses. This includes requesting statements for bank, investment, retirement, and debt accounts from the date of marriage to present. Hiring an accountant may help evaluate financial records and estimate asset values. Key documents to request include tax returns, pay stubs, and financial statements.

1. By Whitney D. Mauk, Esq.
and
Will Geer, CPA

2.  Use the first meeting to determine the
financial issues of the case
 Ask the client to bring to the meeting screen
shots/current statements for all bank,
investment and retirement accounts and
liabilities

3.  Any existing assets exist at time of marriage?
◦ If yes, will need statements from date of marriage
and to the present

4.  Assets: Cash
 info for checking, money market, CDs
◦ Banks and Fiduciary institutions
◦ Current values
◦ CD mature dates
◦ Names on account
◦ Any portion exist on the date of marriage?
 Statement from date of marriage?

5.  Marketable Securities/Investments
◦ Common stock
◦ Preferred stock
◦ Mutual funds
◦ Brokerage accounts
◦ Limited partnerships - public

6.  Stock/Compensation plan
◦ Stock options
◦ Restricted stock
◦ Deferred compensation plan

7.  Business interests
◦ Operating company
◦ Professional practice
◦ Family limited partnership
◦ Holding company
◦ Trust

8.  Real estate
◦ Marital Residence
 Mortgage
 HELOC
 Equity
◦ Vacation Home
◦ Undeveloped land

9.  Retirement benefits
◦ 401k
◦ IRA
◦ Pension
◦ Supplemental retirement
◦ Annuity

10.  Other assets?
◦ Life insurance
◦ Autos, Boats, other vehicles
◦ Collections
◦ Art
◦ Jewelry
◦ Country Club membership
◦ Furniture
◦ Reward points
◦ Tax overpayment

11.  Liabilities
◦ Current statements for all liabilities
◦ Any exist at time of marriage
 If yes and they have decreased, what funds were used
to pay down

12.  Liabilities
◦ Credit cards
◦ Loans
 Notes payable
 Lines of credit
◦ Tax owed: state and/or federal

13.  Child support calculated based on income
 Determine all sources of income for both
parties
 Review Categories on child support
worksheet and DRFA

14.  Do we really need an accountant?
 Can my paralegal do the forensics?
 What is an accountant going to cost?
 When should we hire an accountant?
 Should we use the client’s CPA?
 What records do we need?
 When do we need to ask for the information?
 What are the strategies and deadlines?

15.  Consider a mini-engagement
◦ Define the scope of the engagement
◦ Set the timelines for the objectives
◦ Review available information
◦ Request additional information
◦ Perform estimates of value
◦ Meet with attorney and client to discuss findings
◦ Determine potential strategy
◦ Perform cost/benefit analysis
◦ Engage or not engage

16.  Ask the client about the parties’ income
◦ Salary, commission and bonus
◦ Independent contractor
◦ Self-employment K-1 income
◦ Rental income
◦ Other

17.  Determine documents needed to review to
determine income
◦ Self employed party will need to gather personal
and business tax returns, financial statements, K-
1s

18.  Based on need and ability to pay
 Client seeking alimony must show proof of
need
◦ Document living expenses
◦ Document income
◦ Show the need for alimony to fill gap between
income and budget

19.  Documents needed
◦ Proof of income: W-2, 1099, etc
◦ Proof of spending: bank and credit card statements
◦ Proof of need: lack of other funds to use for
budget
 Account balances

20.  To contest alimony, must prove inability to
pay
◦ Income information: paystubs, etc
◦ Budget information: bank and credit card
statements
◦ Lack of funds to use toward alimony
 Account balances, marital and nonmarital

21.  Request for T/P IRS Transcript Form 4506-T
 Review the General Execution Docket
 Are there any outstanding tax issues
 Innocent Spouse Relief-Build your case early
 Bankruptcy-get an attorney
 Third-party request
 30(b)6 depositions
 Source documents

22.  Financial Documents
◦ Financial statements
◦ Detailed general ledger
◦ Fixed asset registers
◦ Bank statements, checks, deposit slips
 Assets
◦ Business valuations
◦ Real estate valuation and closing statements
 Owner agreements
◦ Corporate by-laws
◦ Operating agreements
◦ Buy-sell agreemnts
 Tax Returns
◦ 1040, 1120, 1120S, 1065,
◦ K-1s, W-3s, 1099s
◦ All supporting schedules and work papers

23.  Make a list of documents needed
◦ Does the client have? Spouse have?
◦ Obtain from the financial institution?
◦ Obtain from employer
 Expert needed?
◦ Business valuation
◦ Tracing
◦ Income analysis

24. Frumkes on Divorce Taxation -
Presented by Will Geer & Wayne
Morrision

25.  Stream of payments conforming to IRC Sec 71
 Support requirement is eliminated
 Periodic requirement is eliminated
 Label, Term or Title Immaterial
 Alimony is a tax subsidy-Contrast IRC 1041
 Payments after remarriage acceptable
 Intent of the parties is meaningless

26.  Dollars-Cash received by or on behalf
 Documents-Divorce or separation instrument
 Designation-Not designated as “Not
Includible”
 Distance-Not members of the same
household
 Death-Payments must cease upon death
 Dependents-payment not child support
 Dual-Separate returns filed

27.  Divorce or Separation Instrument
◦ Decree of divorce or separate maintenance or a
written instrument incident to such a decree
◦ A written separation agreement
◦ A decree requiring a spouse to make payments for
payments for the support or maintenance
 Letters between attorneys satisfactory
 Must be a meeting of the minds with letters

28.  Can designate as not taxable or deductible
 Two differing streams of payments
 Not required to designate includible
 Lump sum settlement of alimony may be
designated as non-taxable/deductible
 Copy of the instrument attached to first
return
 Original and temporary orders must
designate nondeductible and excludible
 Life insurance on death of payee, permissible

30.  Form 8332 revised January 2010
 Declaration must conform to the substance of
the form
◦ Name of the child exemption released
◦ The year the exemption released
◦ Signature, date of signature, and SS# of custodial
◦ Name, SS# of the noncustodial parent
 Bring the 8332 to the mediation or settlement
conference

31.  Exemption released for a single, specific or all
future years
 Must be attached to the non-custodial
parents return for each year claiming

32.  Head of Household
◦ Single or legally separated
◦ Abode for parent, child, stepchild, grandchild
◦ Provide over half support
 Decree of Separate Maintenance Required
◦ Decree, order, or judgment of separation
◦ Agreement is not sufficient
 Date of judgment is important
 Legally separated cannot file joint return
 Annulled marriages must amend prior returns
 Title dictates deductions

33.  Divorce court has no effect on IRS liability
 Innocent spouse relief has no effect on
divorce court findings
 Deficiency Notice
◦ Last known address
◦ Notice tolls the statute of limitations
◦ File Form 8822

34.  Divorce court has no effect on IRS liability
 Innocent spouse relief has no effect on
divorce court findings
 Deficiency Notice
◦ Last known address
◦ Notice tolls the statute of limitations
◦ File Form 8822

35.  Net operating loss (NOL)
◦ Carry back 2 years
◦ Carry forward 20 years
 NOL prior to marriage cannot be used on
subsequent joint return
 Each spouse may carry NOL from joint to
separate returns
◦ Complexities arise in carrying joint to separate
◦ Special allocations required

36.  Charitable contributions
◦ Carried forward 5 years
◦ Can be allocated between spouses
 Investment interest expense
◦ Limited by investment income and carried forward
◦ Need future investment income in order to use
 Capital loss carry forwards
◦ Excess loss limited to $3000 against ordinary income
◦ Excess carried forward indefinitely
◦ Carried forward to separate returns after divorce
allocated:
 Based on net long-term and short-term from preceding
year..

37. Frumkes on Divorce Taxation -
Presented by Will Geer & Wayne
Morrision

38.  Three theories to get relief after 1998
◦ Erroneous understatement by other spouse
◦ Separation of tax liability
◦ Equitable relief
 Form 8857 required
 IRS informs former spouse “full player”
 Request for relief timing
◦ Within two years of collection beginning
◦ Not prior to collection process
◦ Last known address is important

39.  Participating in tax litigations bars ISR
 Non-electing spouse can participate
 Depositions are very important

40.  Erroneous understatement
◦ Can’t have knowledge-reasonable person standard
◦ Taxpayer has burden of proof
◦ Facts and Circumstances
 Nature of the error
 Financial situation
 Education and experience
 Participation
 Spouse failed to inquire
 Departure from recurring pattern
 Lavish or unusual
 Culpable spouses evasiveness

41.  Inequity facts and circumstances
◦ Culpable spouse wrong doing to requestor
◦ Requesting spouse actual knowledge or reason to
know
◦ Benefit received by requesting spouse
 Transfer of property
 Receipt of more than otherwise in settlement
 Accumulation of savings in lieu of consumption
Current marital status
Probable hardship that might be caused.

42.  Separate liability election
◦ Requirements
 No longer married
 Legally separated
 Not members of same household
 Must not have had knowledge (Depositions)
 Duress with knowledge still qualifies
 Actual liability determined by amount of separate return filing
 Credits and deductions may change
 Cannot be used to get a refund
 Eligibility must be met as of the date of election
 Temporary absences are still part of same household
 Separate dwellings could still be part of same household
 Taxpayer has burden of proof regarding liability items
 IRS has burden as to the actual knowledge element

43.  Equitable Relief
◦ Procedures described by IRS
◦ Inequitable to hold request liable
◦ The requestor would suffer economic hardship
 Economic hardship –
◦ Reasonable basic living expense
◦ Reasonable varies according to circumstances