Help Your Client Help Themselves
If you as a tax professional get the opportunity to advise your client before all the I’s are dotted and T’s crossed at the courthouse, here are some things you can do to help:
1. Based on the desired outcome for child custody, have a Form 8332 already prepared for you clients attorney to present for signature at the time of the court appearance.
2. If there will be a distribution from a qualified retirement account, make sure the QDRO is drawn up in the most tax beneficial manner.
3. If there is to be separate maintenance or support make sure the order is drawn up in the most tax beneficial manner for your client.
4. Review state issues with your client.
5. If there is to be a division of business or investment property make sure the order is drawn up in the most tax beneficial manner to your client
6. Liaise with the local Bar Associations, courthouse administrators, and child protective service offices to get them the information to help their clients make a better decision (and maybe refer some clients to you as well).
As with all things taxes, there is a short term outlook and a long term outlook when dealing with a divorcing couple. Unfortunately, emotions may play a big role in the determinations as well. You should be able to advise your client as to both outlooks from a non-emotional financial and non-financial aspect.
What may be good for your client in the short term, getting a large amount of alimony as opposed to child support, for example, may be bad in the long run as it may increase the clients AGI disproportionally during future years.
Getting a large chunk of the monthly support payment ordered as child support instead of alimony may cause real world parenting issues in the future or the reverse since, alimony may be more long term and child support usually ends when the child leaves school.
Getting the house in the divorce may seem like a win, but if you also inherit the mortgage that is under water you may not only lose the house in the long run but may have cancellation of debt to worry about later.
These are just some of the things we need to think about with our clients when they are going through this difficult time in their lives. Emotions tend to make our clients let the “tax tail” wag their financial “dog”. Don’t let that happen to your client. Be their tax adviser as well as their tax professional.