Marriage, Divorce, and Taxes: Why December 31st 2015 is different than January 1st 2016

Getting married in 2015? Or considering finalizing your divorce in 2015? Your status makes a difference for your taxes.

The most important thing to remember is that your marital status on the last day of the year (December 31, 2015) determines your marital status for the entire year for the purposes of income tax filing.

Married in 2015?
First, let’s go over some of the IRS rules and benefits for all of those couples getting married this year.  
If you get married at any point in 2015, you are now required to file taxes either as married filing separately (MFS) or married filing jointly (MFJ) for any income you earn in 2015. What this means is that when you go to file taxes next April, you no longer have the option of filing as a single person.
For most couples filing a tax return as married filing jointly provides a beneficial tax outcome. Married couples filing a joint return can claim two personal exemptions instead of one and can use a standard deduction of $12,400 verses the single taxpayer deduction of $6,200. You can also choose to itemize your deductions for benefits like mortgage interest payments.
Another benefit of getting married this year is that spouses can give each other unlimited gifts without the gift tax limits.
All being said, the change in status is not necessarily a win for many professionals as the marriage penalty can start to impact your tax rate. You can determine if you are going to be impacted by the marriage penalty.  

Divorced in 2015
Under the IRS rules, your marital status on the last day of the year or December 31, 2015 determines your marital status for the entire year.
In California, the Court will not issue an official decree of divorce before 6 months from the date of filing and serving of the Petition for dissolution (California Family Code 2339). This means you need to start the process (file) before July 1st.
It is important to remember that most of the biggest taxable events are not necessarily part of the divorce process itself, but actually occur in the years that follow as a result of the divorce settlement, like the sale of a home, capital gains, and who will be able to claim the children as dependents. These won’t really be affected by whether you get divorced in 2015 or 2016.
Here are some common tax credits and exemptions that could impact your decision to file before June 30th, 2015, though:
 

Children
If you have children, one important tax issue to determine who will take the deductions for a dependent child. This is because the tax implications are important. For each dependent a parent can deduct $3,900 from their federal taxable income.  In order to qualify, the child must live with the parent claiming the exemption more than half of the year and be under the age of 19 at the end of the year. Often parents will alternate who gets to claim the exemption from year to year.

If you are able to get a final divorce decree by December 31, 2015 and file as single another benefit may be that one spouse can claim Head of Household. In order to qualify for this status, you and your ex must have lived apart for the last six months and the claiming parent also has to pay more than half of household costs. In this case, the other spouse files his/her return as single.

Mortgages
Another tax benefit to be aware of is the payment of mortgages.  The person who stays in the marital home may be able to take advantage of one of the most popular tax credits which is the mortgage interest deduction. The mortgage interest deduction is the part of your monthly payment that covers the interest you pay on the mortgage.

Property Taxes
The last issue to be aware of is property taxes. If both parties have made any estimated property tax payments this year, then you have two options. First, one party can claim all of the payments or second the payments can be divided between the parties pursuant to an agreement. These payments should be reflected on your tax return.
Tax issues can be complicated, especially when you are changing your filing status from married to single. Consult with a family law attorney and tax professional to make sure you are aware of the risks and benefits associated with changing your tax status.

What law governs prenup agreements?

Experienced Bay Area Family Law attorneys will tell clients that premarital and preregistration agreements are recognized under California law (Fam C §1500) and are governed by the Uniform Premarital Agreement Act (Fam C §§1600–1617) (the Act), except to the extent California has modified the terms of the Act, and by Fam C §§1500–1503 (addressing both premarital and other marital property agreements). 

A premarital or preregistration agreement is defined as an agreement between prospective spouses or domestic partners made in contemplation of marriage or registration, to be effective on marriage or registration. Fam C §§1610(a), 1613. A premarital or preregistration agreement must be in writing and signed by both parties. It is enforceable without consideration. Fam C §1611. It may be amended or revoked after marriage or registration only by a written agreement signed by both parties. Fam C §1614.

 

Learn more about prenups here.

 

Legal Guide to Elopement

Feeling romantic and spontaneous after the recent Supreme Court decision on gay marriage? Itching to tie the knot with someone special? You are not alone. The Supreme Court of the United States recently proclaimed in Obergefell v. Hodges that,

[m]arriage is sacred to those who live by their religions and offers unique fulfillment to those who find meaning in the secular realm…. Rising from the most basic human needs, marriage is essential to our most profound hopes and aspirations.

But don’t move too fast. Here are five important legal issues to keep in mind if you are considering eloping with your sweetie to the nearest chapel:

1. You Need A Marriage License

Each state has different standards for obtaining a marriage license. For example, in California, both parties must appear in person and bring valid picture identification to the County Clerk’s Office to apply for a marriage license.

In some states, like Louisiana, there may even be a waiting period of up to three days before and after receiving your marriage license.

You may have heard that you need a blood test to get married. This is mostly myth. However, until recently, some states, like Mississippi, required a blood test to obtain a marriage license. However, today you can get married in most states that used to require a blood test by simply waiving the blood test requirement through informed consent.

2. Prepare for the Costs

The cost of a marriage license varies state by state and can be reduced by your own level of your preparation.

For example, Georgia has a program where all fees associated with your marriage license can be waived so long as you show proof of completion of an approved premarital counseling course. Generally, fees for marriage licenses are around $100 to $200 with the fee for the license and any subsequent copies. But buyer beware: as cheap as getting married may be, divorce is still very expensive and filing fees for divorces are rising to $450 in some counties in California.

3. You will need an Officiant

The person who marries you is called the marriage officiant, and this person can be a clergyperson or otherwise authorized individual. Remember how Joey married Monica and Chandler in Friends? Depending on your state, many different types of individuals are authorized to perform weddings, including ship captains and Medicine Men or even shamans.

In California, anyone who officiates a wedding is required by law to complete the marriage license and return it to the County Recorder’s office within 10 days of the event for registration. Each state will have its own requirements so be sure to check with your state and county on who can officiate your wedding.

4. Elopement means alone, right? Wrong.

Nope, some states require that you must also have at least one witness present at your ceremony. These requirements are varied as other states required at least two witnesses, and some states, like Florida, do not require any witnesses. It is best to check with your local county to be sure about the witness requirement.

5. Make sure you do your homework.

Depending on your state you may have to read information about marriage and make a sworn affidavit before obtaining a marriage license. For example, in Florida all newlyweds must certify that they have read the Family Law Handbook created by the Family Law Section of the Florida Bar.

While many states do not require this step, as a family lawyer, I recommend that everyone consider aprenuptial agreement or at least understand what your state’s property laws entail upon dissolution before taking the plunge. Elopement and prenups are a bit antithetical as California requires that (1) Both parties must be represented by separate independent attorneys, (2) disclose fully their finances (including any assets and debts), and (3) the final form of the agreement must be in the hands of each party at least seven days prior to signing the document. The prenup requirements can put a damper in the honeymoon planning, but as a family lawyer, I’d rather be safe than sorry.

Enjoy the summer wedding season and plan accordingly!

Why every California professional needs a prenup.

You’ve created the perfect Pinterest wedding board, invited your friends to the Vegas Bachelor party, and booked your honeymoon in Fiji. What’s next?  A prenup. Yes, you really should have a prenup.

Sure, prenuptial agreements aren’t very sexy or romantic, but what you may not realize is that even if you don’t sign a prenup you are already agreeing to one: the California state default. Even if you decide not to negotiate a prenup, it is absolutely necessary that you understand the financial implications of one of the most important agreements of your life: your marriage contract.

California is a community property state. This means that unless you create an agreement to the contrary, any property that you guys acquire during the course of a valid marriage is characterized as “community property,” and in the event of a divorce, each spouse is entitled to half of it.

This doesn’t include property acquired before marriage, after permanent separation, through inheritance, or as gifts: these types of properties are separate property and most of the time you get to keep this property in a divorce.  

Risk, what risk?

There are other risks that you may take on if you don’t have a prenup.  First, if you gain significant equity in a startup or business during the marriage and divorce without a prenup, your spouse may get half, possibly including that equity’s share of control over the company. Additionally, any increase in the value of separate property during the marriage (including capital gains), is considered community property if one spouse used his/her skill and effort to increase the value during the marriage. 

Another reason to get a prenup is if one spouse is likely to acquire debt during the marriage. Community property rules mandate that assets and debts acquired during marriage are shared equally, so if you marry someone with a tendency to spend more than they earn, a prenup could save you money.   

There are some protections in this default contract as well. Most notably, a spouse is entitled to reimbursement of any separate property he/she used to acquire community property. For example, if you use separate property--like the proceeds of sale of stock acquired before the marriage--as the down payment for a house bought during the marriage, then you are entitled to get your separate property without interest back at the time of divorce. 

Alimony,  sounds old school, didn’t we get rid of that?

Finally, California’s default system allows for a judge to award spousal support for both short and long term marriages. The amount of spousal support awarded by a judge at divorce is variable and not set by law. While marriages that are shorter than 10 years rarely have indefinite support awards, the standard constantly changes. Without a prenup, you cannot predict or control whether spousal support will be ordered by a Judge in the event of a divorce. 

Legal Details

In short, the prenup details what happens to property in the event of a divorce. It is a negotiated contract that identifies rights, obligations, property division, and potentially spousal support in the event your marriage ends in divorce. Having an agreement in place can save expensive divorce litigation and more importantly, provide transparency to the finances in your relationship.  

In order to create an enforceable and valid prenup, there are several legal formalities. (1) Both parties must be represented by separate independent attorneys, (2) disclose fully their finances (including any assets and debts), and (3) the final form of the agreement must be in the hands of each party at least 7 days prior to signing the document.

Want to learn more? Talk to a family law or estate planning attorney about the specifics of your situation.  

A prenup typically takes several months to negotiate, so you’ll want to start the conversation well before your wedding date.
I understand that drafting a prenup does not sound fun. But prenups are crucial for numerous reasons. Most importantly, having a say in your financial future. You would never sign a contract without reviewing the terms, and marriage shouldn’t be different. 

If you are considering a premarital agreement, contact amanda@gordonfamilylaw.com for more information.