Financial Planning & Property Division Flashcards

A divorcing spouse is awarded the marital home with a fair market value of $400,000 and an adjusted cost basis of $150,000. If the home is later sold by this single filer, what is the maximum capital gains exclusion available?

Answer: $250,000

A single filer who has owned and used the home as a primary residence for 2 of the past 5 years may exclude up to $250,000 of capital gain under IRC Section 121.

Under the Tax Cuts and Jobs Act of 2017, alimony paid under divorce agreements executed after December 31, 2018 is treated how for federal income tax purposes?

Answer: Not deductible to payer, not taxable to recipient

For post-2018 divorce agreements, alimony is no longer deductible by the paying spouse and is not included in the recipient's taxable income under the TCJA rules.

What is the primary purpose of a Certified Divorce Financial Analyst (CDFA) creating a 'lifestyle analysis' for a divorcing client?

Answer: To document the standard of living established during the marriage

A lifestyle analysis documents the marital standard of living using tax returns, bank statements, and spending records, which is key evidence for spousal support determinations.

When dividing a 401(k) using a QDRO, which approach allows the alternate payee to withdraw funds immediately without the 10% early withdrawal penalty, even if under age 59½?

Answer: Direct distribution from the plan as alternate payee

An alternate payee receiving a QDRO distribution directly from the plan may take cash distributions penalty-free regardless of age, though ordinary income tax still applies.

Stock options granted during the marriage but not yet vested at the time of divorce are typically classified as what type of asset for division purposes?

Answer: Partially marital, based on the ratio of marital to total vesting period

Courts typically use a time-rule formula to allocate unvested options between the marital estate (for service during the marriage) and separate property (for post-separation service).

Which financial concept describes a situation where the marital estate owes more in debts than the total value of its assets?

Answer: Insolvent marital estate

An insolvent marital estate has liabilities exceeding assets, which significantly complicates equitable distribution since there may be nothing to divide after debt settlement.

Which professional credential specifically qualifies an individual to prepare a Qualified Domestic Relations Order to divide retirement plan assets?

Answer: QDRO specialist or attorney — no single credentialing body governs this

There is no single licensing body that exclusively governs QDRO preparation; both attorneys and financial specialists may draft them, but they must comply with plan rules and federal law.