CDS Tax Implications of Divorce 3

Question 1

When a divorcing spouse receives employer stock options as part of a property settlement, the tax event typically occurs:

Accepted Answer

When the receiving spouse exercises the options

Answer

At the time of the divorce decree

Answer

When the options are transferred to the receiving spouse

Answer

When the options are first granted by the employer

Question 2

A divorce attorney instructs a client that alimony received under a pre-2019 agreement should be reported on their federal tax return as:

Accepted Answer

Gross income on Form 1040

Answer

Schedule C business income

Answer

A tax-exempt payment not reported

Answer

Capital gain income on Schedule D

Question 3

In a divorce involving rental property, a CDS should advise the client that accumulated depreciation on transferred property will result in:

Accepted Answer

Depreciation recapture taxed as ordinary income when the recipient eventually sells the property

Answer

No tax consequence since the transfer was tax-free under Section 1041

Answer

A step-up in basis eliminating all depreciation recapture

Answer

Immediate recognition of depreciation recapture at the time of transfer

Question 4

Which concept describes the tax risk when one spouse receives low-basis, high-value assets while the other receives cash in a seemingly equal property division?

Accepted Answer

Hidden tax liability / inequitable after-tax division

Answer

Tax parity

Answer

Constructive receipt

Answer

Phantom income

Question 5

What is the tax treatment of health insurance premiums paid by an ex-spouse for the other under a divorce decree for agreements executed after 2018?

Accepted Answer

Neither deductible as alimony nor taxable as alimony income

Answer

Deductible as alimony by the payor

Answer

Taxable income to the recipient

Answer

Deductible as a medical expense by the recipient

Question 6

A spouse is ordered by the court to pay the other's student loans as part of a divorce settlement. For post-2018 agreements, these payments are treated as:

Accepted Answer

Non-deductible payments with no tax effect on the recipient

Answer

Deductible alimony for the payor

Answer

Taxable income to the recipient

Answer

A gift subject to gift tax

Question 7

A Certified Divorce Specialist is working with a client who will receive a lump-sum settlement. The CDS recommends consulting a CPA specifically because:

Accepted Answer

Lump-sum settlements may have tax implications that vary by asset type, basis, and applicable tax year

Answer

The CDS is prohibited from discussing any financial matters

Answer

Lump-sum payments are always tax-free under divorce law

Answer

The IRS requires CPA oversight for all divorce settlements