When tax carry forwards exist in the marital estate
This has become a sensitive issue given the 2018 tax reform act. Why? The new tax laws limit how much a taxpayer can take as their standard deduction. You may have heard about the $24,000 standard deduction limitation for people who file as married filing joint and a $12,000 limitation for individuals who file single or head of household.
The issue still on the table is whether the charitable contribution will be a part of the standard deduction calculation or whether it will be “moved above the line” to be part of the adjusted gross income (AGI) calculation. Congress is debating this move as they could possibly lose a lot of money if they move it above the line. If they don’t handle this issue properly then many charitable organizations could lose a lot of revenue potentially resulting in closures.
In context to a divorce how does the charitable contribution carry forward impact you?
If you have a charitable contribution carry forward that was created in your joint return you will want to know how to allocate it between you and your spouse.
First and foremost this may be a moot issue for you. Why?
- Evaluate whether your charitable contribution carryover is material or not
- Take a peek at which spouse has a higher tax bracket. The spouse with the higher tax bracket and the one who exceeds the standard deduction threshold may benefit the most
- Determine wether the carryover will enable you to go over the $12,000 standard deduction. If you are already over it then you may gain a benefit. If you are not, you may not even reach the threshold to obtain a benefit
Some guidance suggests to be wary who made the initial contributions. In context to a divorce it is not particularly relevant who made the initial contributions as long as the contributions were made from the marital estate. This is usually the case for most people.
About the Author
Larry Smith is a Founding Partner of Divorce Outcomes, a specialized professional services firm that manages all of the financial aspects in a divorce process. Since 2003 he has worked as a trusted financial advisor, financial advocate, divorce architect and technical financial expert; he is not an attorney. He is an alumni of KPMG and Andersen with expertise in technical accounting, forensics, sophisticated taxation, management consulting, risk management, advanced process engineering, business combinations, divorce management, multi-party negotiations, advanced quality analytics and cognitive performance technologies. Since 1986 Larry has been advising individuals and organizations about innovative financial solutions to resolve complex financial challenges that arise in life and in business.
For both personal and business divorces, Larry is considered an expert in divorce strategies, divorce process management, financial divorce architecture, financial risk management, taxation for divorces, financial divorce forensics, advanced divorce analytics, financial divorce negotiations and mediation, business valuations and sophisticated equity structures. He helps clients shape complex financial decisions, manage communication risks and ever-changing negotiating positions to strategically preserve or grow wealth from these types of transactions.
If You Have a Question
If you have a question, feel free to contact me at [email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.
About Divorce Outcomes
Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in their divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients manage their divorce process, uncover hidden financial risks, architect divorce solutions, manage ever-changing negotiating positions, communicate complex financial matters and close the divorce process as soon as possible with a goal to arrive at the best outcomes possible. Throughout the process we evaluate the current state of our clients’ financial lives with an objective to best reposition their future. We do not sell any products. We simply raise issues that are in our clients best interest. Our clients share with us we:
- unfold, analyze and repackage their financial life so they are well positioned after their divorce
- preserve the value of their business or marital estate
- continuously strive to provide a return on our services
- build balanced financial solutions grounded in evidence
- find ways to make our client, and at times both parties, money through the process
- design their divorce to work for them and their family’s life
- provide mental clarity to make decisions
- reduce the total process time from start to close
- minimize the stress and unpleasant memories that can last a lifetime
As we reach an agreed upon settlement structure, we help our clients identify a fitting attorney who can leverage the financial solution to draft and record the requisite legal documents. Where outcomes are at risk from a traditional process, we function as expert financial negotiators or financial mediators to turn around the situation and achieve our client’s desired outcomes.
This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.