Jim Suits, President, Summit Capital Advisors (jsuits@summitcapitaladvisors.net) had this story to tell after reading the last entry:
"Your last blog entry reminds me of a case we had where a tax client who came in to have his taxes done. He and his wife of 30+ years had gotten a divorce the year before. To save attorney fees, they downloaded the forms and "filled in the blanks" without help. The husband took them to an attorney and asked: will this work? The attorney looked at the papers and said: Yes.
"One item in the divorce stated that the wife was entitled to 50% of his 401k. So, after the divorce the husband withdrew her 50% from the account and wrote her a personal check. It was after that, that he came in to have his taxes done. Imagine his surprise when he was hit with early withdrawal penalties and income taxes totalling more than $100,000. Then came that famous question "Why didn't someone tell me?"
"(Because you wanted to save a nickel, that's why!)"
Monday, August 13, 2007
Friday, August 3, 2007
Do-it-yourself divorce mistake
When Michelle and Scott got divorced, they didn't want to spend money on an attorney so they got the forms and did it themselves. They had no children so the only issue was dividing the property. They decided to split all of their assets 50/50 and their final agreement stated that "they would divide each asset equally." Their assets included a $24,000 savings account and a $104,000 mutual fund, both in joint names.
After the divorce was final, they each had pressing business issues and kept putting off the paperwork needed to divide the two accounts. After a year had passed, Scott finally found time to get the savings account and the mutual fund divided. Imagine their surprise when they were hit with gift taxes!
The Tax Reform Act of 1984 says that transfer of property is incident to divorce if it occurs within one year of the divorce OR the transfer is stated in the divorce decree and occurs not more than six years after the divorce.
They could have avoided the tax problem they found themselves in if they had consulted with an attorney and (1) stated in their final agreement the specific assets that were to be divided, or (2) realized the importance of dividing the assets within the first year after divorce.
After the divorce was final, they each had pressing business issues and kept putting off the paperwork needed to divide the two accounts. After a year had passed, Scott finally found time to get the savings account and the mutual fund divided. Imagine their surprise when they were hit with gift taxes!
The Tax Reform Act of 1984 says that transfer of property is incident to divorce if it occurs within one year of the divorce OR the transfer is stated in the divorce decree and occurs not more than six years after the divorce.
They could have avoided the tax problem they found themselves in if they had consulted with an attorney and (1) stated in their final agreement the specific assets that were to be divided, or (2) realized the importance of dividing the assets within the first year after divorce.
Subscribe to:
Posts (Atom)
