Legal and Financial Considerations in Divorce Flashcards
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Read the first 7 Legal and Financial Considerations in Divorce flashcards as text
Under IRC Section 1041, what happens when property is transferred between spouses incident to divorce?
Answer: No gain or loss is recognized, and the recipient takes over the original cost basis
Section 1041 makes divorce property transfers tax-free with a carryover basis.
Why might two brokerage accounts each worth $200,000 not be equal in real value to a divorcing client?
Answer: They may have different cost bases, creating different future capital gains taxes
An account with a low cost basis carries a larger embedded tax liability than one with a high basis.
An alternate payee receives a distribution from a 401(k) under a QDRO and takes cash at age 45. Which tax consequence applies?
Answer: Subject to income tax but exempt from the 10% early withdrawal penalty
QDRO distributions to an alternate payee are exempt from the 10% penalty but are still taxable income.
How can an IRA be divided between spouses in a divorce without creating a taxable event?
Answer: Through a transfer incident to divorce under the divorce decree, often by trustee-to-trustee transfer
IRC Section 408(d)(6) allows tax-free transfer of IRA interests under a divorce or separation instrument, without a QDRO.
Which type of spousal support is designed to give a lower-earning spouse time and resources to gain education or job skills to become self-supporting?
Answer: Rehabilitative alimony
Rehabilitative alimony is time-limited support tied to a plan for becoming self-sufficient.
In a pension division, what does the 'coverture fraction' typically measure?
Answer: The portion of the pension earned during the marriage relative to total service
The coverture fraction divides months of service during the marriage by total months of service to find the marital share.
A client says, 'My spouse handled all the money and I don't know what we own.' What is the most appropriate first step a divorce coach can support?
Answer: Help the client organize available documents such as tax returns and statements and prepare questions for the attorney
Coaches help clients gather and organize information, while discovery and valuation belong to attorneys and financial experts.