As we head into the second half of 2014, now is a good time to take stock of your financial and tax situation, particularly if you are separated or divorcing. Over the next few posts, I am going to highlight some areas worth considering if you are in either situation since it is much easier to stay ahead of these issues rather than scramble to catch up to them in January or February next year.
For this post, I wanted to give a brief summary of how monetary gifts are dealt with by the IRS and how they can impact a divorce case.
The first thing to know is that the IRS has a maximum tax exclusion of $14,000.00 for gifts. The IRS allows up to that amount to be excluded from taxes, however, anything above $14,000.00 requires a Gift Tax Return to be filed by the person giving the gift and the possibility that they will have to pay tax on the gift. The recipient (or “donee”) does not have to file anything with the IRS or pay any taxes on the gift they receive. Anyone giving gifts in excess of $14,000.00 has to file a Form 709. The exception to this rule is if the gifts are made to a spouse.
Understanding the rules on gifts and the threshold for what requires the filing of a gift tax return is important for those receiving financial assistance from a third-party during a divorce action. The donor may be able to contribute the money as an excluded gift. From the perspective of litigation, it is also important where there are concerns that an estranged spouse is dissipating the marital estate through gifts to third parties. Requesting the production of gift tax returns should be a standard discovery request in most divorce cases.
Though this is really an estate planning concept, it nevertheless can be relevant in a divorce action. There may also be situations where a spouse receives a portion of the estate and there are tax ramifications which he or she cannot address due to their income levels. Gifts and other estate planning devices may be useful tools for managing such issues. If you have questions about gifts and gifts exclusions, speak to your attorney. In my firm, we are fortunate to have many excellent estate planning attorneys who collaborate with us on family law cases to help address such issues.
Form 709 can be found here.
(Photo Credit: www.giftster.com)
Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; email@example.com, and on Twitter @AaronWeemsAtty.