2020 Year-End Tax Guide

59

www.marcumllp.com

The best strategy is to have a written plan in place. “ ”

LET’S PLAN The best strategy for modern families is to have a written plan in place. Here are some recommendations: I. Why can’t we just get along?

D. Filing the Final Tax Return.

How will the final income tax return be filed as a married couple, once the divorce is finalized (i.e., married filing joint or married filing separate)? What CPA will be used to prepare the return(s)? Who will pay the cost of the tax return preparation? All of these questions should be answered during the settlement process

The more entangled the lives of a couple are (such as purchasing real property together or having children), the bigger the risk if they decide to split. Unmarried couples should consider cohabitation agreements. Likewise, couples anticipating marriage should think about prenuptial agreements, while those who are already married may benefit from post-nuptial agreements. Having a mutually agreed-upon plan regarding assets and children while you are amicable can protect all parties’ interests and minimize the potential for future litigation. II. Where there is marriage, there may be divorce… Divorce rates across the country have skyrocketed this year, perhaps as fall-out from the added stress of living under pandemic lock-down. When negotiating a divorce or settlement agreement, couples should consider the following: A. Alimony or Support Trusts. These trusts may soften the tax hit for the payor spouse, given the elimination of the alimony deduction, while also guaranteeing payments even after the payor spouse passes away. B. Child Tax Credits. Recent changes to the child tax credit may make it a tool for negotiation. The credit has increased to $2,000 per child, which phases out for taxpayers with $200,000 or more of income. This may provide an avenue to give the credit to the spouse with lower income in exchange for a break elsewhere. C. PRIDE Act. Divorcing couples should leave the door open for the PRIDE Act and include in their agreements the ability to amend returns. They should also determine which CPA will prepare the amended returns, handle any potential audits, and be responsible for the cost of the CPA to avoid future conflict.

III. Why You Need A Plan.

Don’t forget about estate planning and updating documents with every life change. Does your will provide for your life partner? How about the children of your partner who were not adopted? If the parties are divorcing, is there a plan to update documents as soon as the divorce is finalized? It’s important to note that, depending on state laws, divorce may not automatically revoke your ex-spouse as a beneficiary on all assets. A divorce also may not automatically remove an ex-spouse’s family members or friends as trustees or beneficiaries or decision makers. Health care directives also should be reviewed, especially in light of the coronavirus pandemic. There is a great deal for families to consider with regard to tax planning, and further, there are many proposed laws that may affect opportunities and decisions related to today’s modern and blended families, which should be discussed with tax and estate planning advisors.