The Tax Consequences of a High Asset Divorce

Getting a divorce can be a highly stressful and emotionally taxing process. Apart from having to come to terms with a failed marriage, you also have to deal with the tax issues stemming from the divorce – especially if you and your spouse happen to own a substantial amount of assets.

Division of Assets in a Virginia Divorce Case

In Virginia, marital assets are divided based on the doctrine of equitable distribution, which means the assets are to be divided in a fair and equitable manner – not necessarily equally. Depending on various factors, you or your spouse could get the larger share of the property. These factors include:

  • Earning capacity of both spouses.
  • Contributions (monetary as well as non-monetary) made by both spouses towards the acquisition and upkeep of marital property.
  • Debts and liabilities of both spouses.
  • Length of the marriage.
  • Factors that led to the divorce (whether one of the spouses was at fault).

It should be noted that the term ‘marital property’ refers only to those assets which were:

  • Acquired after the marriage.
  • Acquired by either of the spouses before the marriage but increased significantly in value after the marriage due to the contributions made by either or both of the spouses.

The different types of marital property that may end up being divided in the event of a divorce include:

  • Residential properties
  • Vacation homes
  • Bank accounts
  • Retirement accounts
  • Stock market investments
  • Life insurance policies
  • Automobiles
  • Jewelry
  • Businesses
  • Trusts
  • Artwork
  • Collectibles
  • Furniture
  • Intellectual property

Tax Issues to Consider in a High Asset Divorce

Filing Status

One of the immediate consequences of a divorce is that you will no longer be able to file taxes jointly. This means that you will have a different tax filing status – most likely either single or head of household – which will have various tax implications.

Capital Gains Taxes

Some of the marital property you own – real estate property and stock investments in particular – might have to be liquidated and distributed equitably between you and your spouse. If the assets in question have increased in value since you or your spouse acquired them, you may have to pay capital gains taxes on the proceeds.

If, on the other hand, the assets in question have considerably depreciated in value, you will be selling them at a loss. In such a scenario, you and your spouse might be able to deduct the losses from your taxable income. You can discuss it with your spouse, consult your lawyer, and talk to a CPA if needed and decide who gets to deduct the losses from their income.

Retirement Accounts

In Virginia, retirement accounts are generally considered marital property – even if the accounts in question were opened before the marriage. However, the court will take the date on which the account was created and the date of your marriage into consideration while dividing the retirement funds.

Let us assume that you opened a retirement account five years before your marriage, made regular contributions throughout the course of your marriage, which lasted 20 years, and have now filed for a divorce.

In such a scenario, the court might decide to exempt the contributions made to the account prior to the marriage while dividing the funds. In that case, it would only divide the contributions that were made during the 20 years you were married to your spouse.

One of the problems associated with the division of retirement accounts is that you might have to pay early withdrawal penalties. In order to avoid these penalties, some types of retirement accounts require that you obtain a qualified domestic relations order (QDRO).

Child Tax Credits

The IRS states that only one spouse can claim child tax credits in a given year. So, if your spouse gets custody of your children, you will probably not be able to claim child tax credits anymore.

Spousal Support

Until 2018, spousal support payments were tax-deductible. This is no longer the case, which means you cannot deduct the payments from your taxable income – if you are the payer. On the other hand, if you are the recipient, the payments you receive are exempt from taxes, which can be an advantage.

Planning to File for Divorce? Choose the Right Divorce Lawyer to Represent You

At Olmstead and Olmstead, we know that high asset divorces can be extremely complicated. We will be with you at every step of the process –valuation and division of marital assets, allocation of debts, spousal support, child custody, and child support. We will work hard to achieve a positive outcome in your divorce case and to protect your long-term interests. Call us today at 703-361-1555 for a free consultation with one of our Virginia divorce attorneys

How Does Mediation Work During a Divorce?

Divorce mediation refers to an alternative dispute resolution process that is available to couples to settle their differences on specific matters in a divorce. In some cases, the divorcing spouses may decide to try mediation. A judge may also order mediation for the couple in a divorce. It is vital to understand how mediation works before considering or initiating this process.

Role of the Mediator

A divorce mediator is a neutral third party. They will help and facilitate the spouses in reaching a mutually agreeable decision on matters related to residency, child custody, parenting time, division of assets, or other aspects related to divorce or family law issues.

Typically, mediators are attorneys. But they do not act as a legal representative for either party. Also, they do not provide any legal advice to the divorcing spouses during mediation. The mediator helps both parties in identifying the problems, reducing misunderstandings, focusing on priorities, determining areas of compromise, and arriving at mutually agreeable decisions.

The mediation occurs in a relatively informal environment, where the mediator assists the couple in addressing their differences, identifying priorities, and reaching a consensus where possible. Any agreement that the parties reach is based on the parties’ decisions and not those of the mediator.

A mediator does not decide for the parties or force agreements on the divorcing spouses. Rather, they understand the viewpoints of both spouses to try to determine areas of agreement. In mediation proceedings, all points of agreement are based on the spouses’ decisions and not the mediator’s.

How does the Mediation Process Work?

Mediation sessions take place in a safe and informal setting. The discussions that occur during mediation typically remain private. Any statements that the spouses make during mediation are protected by privilege. There are some necessary exclusions, such as matters such as reporting threats of violence. The factual information exchanged during mediation may be provided to a participant’s attorney at the end of the mediation if both spouses are agreeable to the disclosure.

At the outset of the mediation session, the mediator explains the process to both parties. Initial discussions are focused on determining areas in which the spouses have differences. Upon establishing the agenda, the mediator uses their experience and professional skill to encourage meaningful discussions between the participants. The mediator navigates through the issues and helps negotiable mutually acceptable resolutions, if possible.

In the mediation session, the mediator ensures that the participants fully consider the children’s best interest and the consequence of any decision both parties reach pertaining to the children. The mediator may meet with the children and other people if both spouses agree.

The mediator will end the process if they conclude either that continuing the mediation will harm or prejudice a party or impact the children or that the lack of willingness to participate makes a reasonable outcome unlikely.

What Happens if the Participants Agree on Issues?

In divorce mediation, an agreement is not binding on the participants or admissible in court unless it is documented, signed by both spouses and their lawyers, and approved by the court. When the mediation process ends, the mediator provides a written summary of the agreements reached by the participants. Moreover, the mediators will recommend that the participants seek legal help for assistance in the documentation of their mediation agreement.

When is Divorce Mediation Appropriate for Spouses?

While divorce mediation can be an effective process, it is not necessarily the right approach for all divorcing couples. If the spouses are amicable and have some basic agreements but also certain differences to resolve, the mediation process may work well.

Divorce mediation can also be effective in situations of high conflict. Mediators have the experience, skills, and tools to resolve the conflict between both parties, even in acrimonious circumstances. The mediator represents a neutral third-party and works to address disputes without taking sides by facilitating conversations between the participants. They offer equal support to both participants and encourage the spouses to focus on the best path forward for them and their families.

The process of mediation is versatile and adaptable. Spouses can use this format to resolve outstanding differences without the involvement of the judicial system. It can also save costs and emotional stress related to extended court battles. If you believe that mediation may be right for your divorce case, you should speak to your attorney or a professional mediator to learn more.

Consult an Experienced Virginia Divorce Attorney Today

Divorce is perhaps one of the most difficult times in a person’s life. At Olmstead & Olmstead, our compassionate attorneys are committed to fighting for your best interests to make life easier for you and your kids. Our Virginia family law attorneys have in-depth knowledge of divorce, paternity, child custody, modification, and other family legal matters.

To schedule a confidential and free consultation with one of our attorneys, call today at (703) 361-1555.

 

Are Personal Injury Settlements Considered Marital Property in a Divorce?

Couples going through a divorce can sometimes be involved in accidents or other events that cause injury. What happens when a spouse sustains injuries due to a third-party’s negligence, files a personal injury claim, and collects a substantial settlement? Will the other spouse be entitled to at least a part of the settlement amount if they are getting divorced?

Consider a scenario where you have collected or expect to collect a settlement for your personal injuries. In that case, you may want to understand whether these proceeds are considered marital property (which will be divided equitably between the spouses during a divorce).

The answer will depend on when the accident occurred and what the rest of the assets are. Judges must evaluate various factors to determine the property. The amount received in a personal injury settlement award could be deemed marital property, which is eligible for division between the two parties.

Marital property generally refers to all jointly owned assets obtained from the date of the marriage to the date of the separation, including income earned following the marriage. On the other hand, an inheritance or gift from anyone besides your spouse is categorized as separate property.

In a Virginia divorce case, property division can be a very tricky issue, and the arguments should be strategically crafted in your best interest. To understand whether your personal injury settlement award is marital property, consult an experienced Virginia divorce lawyer today.

General Principles

Under Virginia law, a personal injury settlement award may be categorized as marital property, irrespective of whether or not the spouse involved in the accident sustained an injury. In general, a judge will review the reason for your personal injury settlement award, which will establish whether or not your spouse is entitled to the funds you will collect.

  • If the personal injury settlement is paid to compensate for pain and suffering, this part of the award will not be deemed marital property. This rule is applicable to payments collected for any disfigurement, disability, or debilitation.
  • If the personal injury settlement is paid to compensate for out-of-pocket expenses and other damages, such as lost income or medical bills, the funds will be deemed marital property.
  • If the personal settlement award is paid to compensate a claim of loss of consortium from an uninjured spouse, this amount will not be included in marital property.

The above are general principles followed by Virginia courts. Notably, the party that claims that the funds should be considered non-marital property is responsible for providing evidence that the funds are separate.

Financial compensation represents vital support for victims of serious injuries due to another’s negligence. This type of compensation includes personal injury settlement awards, workers’ comp benefits, and disability benefits. Individuals who are unable to work can collect a more substantial share of the injury compensation and marital assets.

Co-Mingling Personal-Injury Settlement Awards

Lawyers must consider whether their clients have co-mingled money from personal injury settlements with marital assets. If the funds are co-mingled with other marital assets, a personal injury settlement award for pain and suffering may be seen as marital property during divorce proceedings.

In case a client wants to ensure that the proceeds from their personal injury settlement award are not considered marital property, they should use a separate account to deposit the funds. The court will determine whether the funds are to be co-mingled with the marital property during the final dissolution. Therefore, lawyers should educate their clients on the repercussions of co-mingling funds from personal injury settlements.

What should my Divorce Lawyer communicate with my Personal Injury Lawyer?

In cases where you arrive at a pre-suit settlement agreement with an insurer, they will usually require you to sign a document known as a release form. The precise wording and matter contained in a release form will depend on the settlement’s specific circumstances and who is drafting the release. This form will contain a specific dollar amount, representing the full and final amount that the insurer will pay you in exchange for signing the release form.

The release form will often not contain an itemized breakdown of the total amount detailing which portion is assigned to which damages. For instance, in the release form, it might be stated that the insurer will pay you $70,000 in exchange for the execution of a general release. They will not specify how much of the $70,000 is compensation for medical bills, pain, and suffering, income loss, loss of earning capacity, etc.

When the court attempts to determine which portion of that $70,000 is marital property subject to division between the spouses, the lack of the settlement amount breakdown can prove problematic. For this reason, if you are injured due to a third-party’s fault during divorce, it is best to inform your personal injury lawyer of your ongoing or intended divorce case.

Speak to the Qualified Attorneys at Olmstead & Olmstead Today

Dealing with an injury accident can be challenging for both spouses. In fact, it may even be a factor exacerbating the divorce. If you sustained injuries in an unfortunate accident and your ex-partner or spouse wants a part of your settlement, the skilled and compassionate attorneys at the law offices of Olmstead & Olmstead, P.C., can help.

Our experienced lawyers will answer any questions you may have on the various aspect of a personal injury claim and how it may relate to an upcoming divorce. We will be happy to arrange a no-obligation initial consultation to establish whether you or your loved one is entitled to a portion of compensation for your injuries. For a free initial consultation with an experienced attorney, call today at (703) 361-1555

Divorce During the COVID-19 Pandemic

Divorce is often a stressful and emotional experience. Even between couples who mutually decided it was time to go their separate ways. Getting divorced or co-parenting during a global pandemic doesn’t make things any easier. National Public Radio addresses this in their May 6th article ‘Six Feet Of Separation: Stories Of Parenting And Divorce During COVID-19‘.

Virus Presents Unique Challenges

WBEZ’s Carrie Shepherd interviewed two couples for NPR to discuss the unique challenges couples face when divorcing and co-parenting through a pandemic. For Brian and Liz Urban things had been going about as well as one can expect in a divorce.

When the couple decided to separate, Brian moved out of their marital home. However, that was short lived. With the COVID-19 pandemic they decided to move back in together. They felt that with the risk of exposure to the virus it was more safe to continue cohabiting. Shepherd writes, ‘Liz … said it was helpful to have both parents there to help Oliver navigate the confusing and unsettling time the pandemic caused,’ and cites that the couple finalized their divorce in March and now live separately again. The couple was able to finalize their divorce online.

Shannon, however, reported that her divorce was not going as smoothly. ‘After back-and-forth discussions about who would leave the house, Shannon, whose divorce is still pending, said her husband agreed to move out. Then, financial instability from the pandemic forced them to continue to live together with their two sons. Her husband’s company was doing layoffs, and new job prospects are difficult when unemployment numbers continue to skyrocket.’ Shannon’s experience is one shared by many who are divorcing in these uncertain times.

Co-Parenting

Whether divorced or separated, co-parenting is challenging. The issues that created tension in your marriage are unlikely to go away just because you live apart. The pandemic is only making matters more complicated.

‘For separated or divorced parents, the coronavirus can create questions about joint custody agreements, such as whether it’s best to keep children isolated in one home or move them between homes,’ says Shepherd. Many states have made exceptions to their shelter-in-place orders as it relates to custody agreements. For example, in Texas the orders ‘specifically state that ‘traveling to exchange the children is not a violation of the orders‘.

Ideally, parents will discuss the risks and come to their own agreement. Unfortunately many parents do not see eye to eye on how best to protect their children during the pandemic. Judges warn parents that if they fail to uphold the custody agreement they end up with a ‘motion to enforce’. Remember, you always have a right to your court ordered visitation. If your former spouse is not keeping to the agreement, you should speak with your attorney.

Depending on your circumstances, you may have a right to temporarily withhold visitation. J. Alex Jacobson, a Chicago mediator, told Shepherd, “Let’s say, for example, somebody’s an ER doc and the other parent is extremely concerned about what protocols are being implemented to protect the kids,” depending on the circumstances, you may have a case. You should speak with an attorney specializing in family law about your concerns. They will be able to answer your questions and help ensure your children’s best interest is served.

Have Divorces Increased With COVID-19?

It is hard to tell. Right now many states are seeing a decrease in the number of divorce filings. This may be due to a number of factors. Divorce is expensive and with millions out of work or under employed. Couples may simply not be able to afford to divorce right now. Others may feel that it would only make an already stressful time worse and may choose to wait. Vincent Stark, a family law attorney in Chicago, told Shepherd that divorce during the COVID-19 pandemic is similar ‘to what usually happens at the first of the year — divorces spike because couples wait until after the holidays to file’.

For couples who were already struggling, quarantine may be the ‘final straw’. Even those who prefer to spend most of their time at home are feeling the effects of long term confinement. Many are also trying to balance working from home with the challenges of distance learning. Sadly, not everyone is coping well. ‘No one was prepared for this. People in difficult marriages tell me that they feel trapped, want an escape, struggle with the stress of uncertainty about the future, anxiously fear the disease, are climbing the walls with boredom, and feeling lonely,’ Ann Gold Buscho Ph.D. wrote for Psychology Today. The continued shelter-in-place orders are unlikely to do struggling couples any favors. Lawyers expect that divorce rates will jump once the quarantine is over.

Divorce During COVID-19

Couples who choose to move forward with divorce during the coronavirus pandemic may find the process is particularly challenging. To follow shelter-in-place orders, lawyers and judges are using teleconferencing and Zoom. Anyone who has used these technologies knows that they aren’t always user friendly. “The judge couldn’t dial in and when he did dial in, he was on mute,” Liz Urban told Shepherd. They switched to a Zoom call and experienced further challenges. Finally, she walked down the hall to share her soon-to-be ex’s camera to finish the proceedings.

With judges and lawyers working from home in many instances, their availability may also be reduced. This can delay proceedings or stretch out the divorce process. Be prepared that your divorce may take longer than usual while shelter-in-place orders remain in effect.

Seek Legal Advice

Couples may try to save money by self-representing their divorce. While this is possible, it is not recommended, even for couples who are splitting on good terms. Divorce is a stressful, emotional, and complicated process. The pandemic has only made matters more difficult to navigate on your own. Hiring an experienced attorney will help you protect your assets and parental rights. They will also ensure that the custody agreement and other arrangements all serve the best interests of your children. The lawyers at Olmstead & Olmstead, P.C. will be happy to answer any questions you might have about getting a divorce during the pandemic.

Call Olmstead & Olmstead, P.C. at (703) 361-1555 for more information about divorce during the COVID-19 pandemic.

Making Healthcare Decisions for Children of Divorce

When there is a divorce involving children, the parents often have vehement disagreements about various parenting issues. One of the most common areas in which parents may not see eye to eye is with the health care decisions that must be made. Before the divorce is finalized, they might be able to agree on whose health insurance policy the children will be under, but when a specific issue arises, they often have different ideas about how it should be addressed.

Sole vs. Joint Custody in Virginia

The first consideration when there is a disagreement about a health care decision on behalf of the child is which parent has custody. There are two different types of child custody; physical custody and legal custody. Physical custody addresses which parent the child lives with primarily, and how often the non-custodial parent is able to visit the child. Legal custody deals with the ability of parents to make major decisions that affect the child. Healthcare decisions would fall into the area of legal custody, because it would be in the “major decision” category.

When One of the Parents Has Sole Legal Custody

If one of the parents has sole legal custody, then they are able to make decisions about routine medical care (e.g., physicals, dental checkups, eye tests, etc.) without consulting the other parent. In addition, either parent can make a decision about emergency medical care while the child is with them. However, if this is the parent who does not have sole legal custody, he or she must inform the other parent about the medical treatment the child received as soon as it is reasonably possible.

When Parents have Joint Legal Custody

It is becoming increasingly common in Virginia and throughout the country for parents to share legal custody of their children. The default position of the family courts is that it is generally in the best interests of the children for both parents to be involved in their lives. So, even in situations where one parent has primary physical custody of the child, they often have joint legal custody; giving them equal decision-making authority over areas such as education, religious upbringing, extra-curricular activities, and health care. 

In some cases, one parent may be given final decision-making authority over certain areas, with other areas going to the other parent. For example, if religious upbringing and education are more important to the mother and the child is on the father’s health insurance policy, the mother may decide which religion the children will be brought up and which school they will go to, while the father may to have decision-making authority for medical treatment.

In many joint custody arrangements, however, the areas of decision-making are not as well-defined, and it is expected that the parents will consult each other and work cooperatively and in keeping with the child’s best interest. And while they might start out with this intention, specific situations may come up in which a major disagreement may arise.

When the Parents Can’t Agree on Medical Treatment

Disagreements over healthcare decisions can lead to a standoff between two parents with the equal decision-making authority, putting professionals who are just trying to do their jobs in the middle of a parenting dispute. For example, the child injures his arm playing football. The mother wants the child to have surgery, but the father wants to pursue other treatments. Both have consulted equally-competent medical professionals who support their point of view.

How does this situation get resolved? Most likely, in one of two ways; the parents either work together to reach a solution both of them can live with, or one of the parents (probably the mother in this case) petitions the court to obtain full legal custody so she can go forward with the surgery. When the court gets involved, the results are unpredictable, and they depend largely on the viewpoint of the judge presiding over the case and the strength of the arguments presented by both sides.

Involved in a Child Custody Dispute in Virginia? Contact an Experienced Family Law Attorney

Parents with joint legal custody should be committed to working together to decide important parenting matters (based on their children’s best interests). And before going back to court, they should exhaust all other avenues and try to work out any disputes on their own. That said, there are times when there is little choice but to petition the court for a modification of the current custody arrangement. When that situation arises, you need strong legal counsel in your corner advocating forcefully for your rights and interests, and for the best interests of your child.  To schedule an initial consultation with the seasoned family law attorneys at Olmstead & Olmstead, call us today at 703-361-1555. You may also message us through our web contact form or visit our Manassas, VA office in person at your convenience.