Divorce planning.

• Author: Ellentuck, Albert B.
• Position: Case study

Editor's note: This case study has been adapted from "Guide to Tax Planning For Individuals," 2d Edition, by Anthony J. DeChellis, Douglas L Weinbrenner, Catherine A. Roecler and James F. Reeves, punished by Practitioners Publishing Company, Fort Worth, Tex. 1997.

Facts: The 1997 tax returns of your client, Christie Brickley, are currently on extension. Christie stops by your office in July 1998 to drop off additional tax information and mentions (for the first time) that she's going through a "messy divorce." Issues: What are some of the issues that should be considered in doing current and future tax planning for Ms. Brickley?

Analysis

The following checklist should aid the tax adviser in planning for a client undergoing a divorce.

Checklist for Clients Going Through a Divorce

Client name: Spouse name: Prepared by: Date: Reviewed by: Date:

1. FILING STATUS Yes No N/A A. Was the divorce finalized by year-end? -- -- -- B. If not, does the abandoned spouse rule apply (Sec. 7703)? -- -- -- C. Determining whether the client should agree to file a joint return with the spouse: -- -- -- 1. Is the client comfortable being fully liable for any tax, interest and penalties due? -- -- -- 2. Are there tax issues that can be avoided by a separate filing? -- -- -- 3. If a joint return is selected, will innocent spouse status protect the client? -- -- -- 4. If not, has the client been advised in writing of the risk of filing jointly? -- -- -- 5. Is there a tax cost to filing separately? -- -- -- D. Can a decree of separate maintenance (or the equivalent) be obtained to permit filing as a single individual or head of household? -- -- -- II. PROPERTY SETTLEMENTS A. Has legal title to all assets and their classification as marital or separate assets been determined? -- -- -- B. Have the bases of all of the assets been determined? -- -- -- C. As to sales of any assets expected to be disposed of shortly after the settlement, have the tax consequences been computed and communicated to the client? -- -- -- D. Have depreciation and other recaptures, if applicable, been considered on such sales? -- -- -- E. In determining the proper settlement, have the after-tax values of the proposals been computed? -- -- -- F. Have any liabilities on the properties transferred between spouses been considered? -- -- -- G. If a trust is being used, have its tax consequences been considered? -- -- -- H. If the settlement involves a series of payments, should life insurance on the...