Rod Wells, CFPTM

FINANCIAL PLANNING
& TAXES

    Getting Started

      When two people divorce or separate the money issues they struggled with in their marriage are presented to be resolved. Ironically I have seen couples inclined to reconcile after they come to agreement about the money issues in their relationship. Whatever the outcome of how you relate to each other, separating is often a growthful time for people in the way they relate to their finances.
     The first step is to prepare simple income and balance sheets of your financial life. What income comes in and how will you use it in creating your new living arrangements? What adjustments will you have to make due to your separating? What are the assets and liabilities and who's name are they in? For many these are tedious tasks but they become the foundation of truth that you build upon. So it is important to be completely forthright with your spouse and yourself in these matters. For a good set of Work Sheets to get organized go to nolotech.

Tax Planning     
     You may be surprised by the impact of tax laws resulting from the decisions you make in separating your lives. By taking advantage of tax planning you can maximize your after tax income and any tax credits available.
     Here are a couple of the more common things to consider :
     1. If you have children only one of you can claim the dependency exemption for each child. For 2004 that is $2700/child and if a child is under age 17 there is also a $1000 tax credit. You can agree which of you will claim which child regardless of where they actually live. The taxes saved for each  child are:
     Dependency Exemption of $3,100 and Child Tax Credit of $1,000
   Value of $3,100 Exemption
Tax Bracket             Fed Tax Saved     +     Child Tax Credit
15%                               $465                           $1,000
25%                                 775                             1,000
28%                                 868                     Phase out Begins
33%                              1,023                         Phased out 
35%                                                       Phased out Phased out

     The Tax Credit is only good against actual tax due unless there are 3 or more children under 17 and then the excess over tax due is refundable based on a formula comparing Social Security  with Earned Income Credit. So it may be wise to  have the higher taxed spouse take these adjustments freeing more income for support or other obligations. Caution,  these benefits begin to phase out as incomes exceed $75,000 for Single or Head of Household filers. But don't fret, I can show  you comparisons on how the numbers will "shake out" with different scenarios to your best advantage.
     2. Filing status is also important because  the tax rates are quite different between Single and Head of Household. To qualify for head of household you must have paid for more than half the costs of maintaining your home and have your child (Or other qualifying dependent) live in your home more than half the year. You can agree to have your spouse claim the Dependency Exemptions and Tax Credits and still claim Head of household status even though your child lives with you. It is also possible for you both to claim Head of Household status if you have two or more children and agree to Joint Physical Custody so each of you can have one of the children living with you for more than half the year. It depends on what works in your circumstances.

BENEFITS OF MEDIATING

                                                   

DECISIONS TO BE MADE

HOW
MUCH ?

HOW LONG ?

MEDIATING
VS
LITIGATING

Rod Wells, CFPTM

     Mail to: 11 Frost Lane                               
                   
Cornwall, NY 12518-1305                          
      Offices at: Cornwall, Katonah, New Paltz, New York City                      and Connecticut by appointment                                                                                                        
                                               
     Phone: (845) 534-7668  FAX: (845) 534-4608  e-mail:  roddywells@aol.com
       
© Rod Wells, 1998, 2001,2004