Last May, Susan Foreman Jordan in our Pittsburgh office issued a very informative alert on the impact of the United States Supreme Court’s decision in United States v. Windsor on the IRS and Department of Labor recognition of same-sex marriages.

Susan identifies and explains how the IRS and Department of Labor clarified, so as to avoid any ambiguity, that if the same-sex marriage was legally entered into, then they would consider it a valid marriage even if the parties were domiciled in a jurisdiction which does not recognize same-sex marriage.

More technically, the IRS issued a Notice (Notice 2014-19) confirming that for qualified retirement plans and other employee benefit programs must recognize same-sex marriages as of June 26, 2013 when the Windsor decision was made, but that they do not have to extend retroactive recognition to that marriage. Susan expands upon that point and amending plan language to confirm to the Windsor decision.

Susan’s alert is really aimed at plan sponsors and what they can do to confirm with the law. It is also informative to plan participants to understand how the Windsor decision has affected their retirement plan.

_______________________________________________________

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; aweems@foxrothschild.com, and on Twitter @AaronWeemsAtty.

 

I hope you enjoy your box full of $20's
I hope you enjoy your box full of $20’s

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; aweems@foxrothschild.com, and on Twitter @AaronWeemsAtty.

 

 

As the nation emerges from the fog of tax season, many people who paid little attention to their taxes for the previous eleven months just received a crash course in tax planning, either on their own or with their tax professional. If they have a 401(k), they dealt with their retirement account in some way, either by having to pay tax on a distribution or looking at what they were able to contribute over the year; perhaps they were making one last payment before the tax filing deadline.

For many people, however, having a 401(k) plan begins and ends with a few simple actions: sign up for a plan through your job; contribute a pre-tax amount from each paycheck, and; never deal with it until you retire.

Such a simplified approach is a great way to ensure consistent savings and a retirement nest egg. It is not, however, the end of the equation. Recently, Paul T. Murray, president of PTM Wealth Management, wrote a blog entry on five techniques for avoiding the 10% tax penalty for an early withdrawal from a 401(k). This is great information because it sheds light on a practical issue many people going through a divorce or separation face: having to use the only accessible financial account available to them – the 401(k) – before they reach the mandatory distribution age.

Paul highlights five areas where people can avoid paying the 10% tax penalty on an early withdrawal. Not surprisingly, they are complicated and require significant planning to successfully utilize. The most intriguing, in my opinion, is the one-time withdrawal from a rollover of 401(k) funds. Many times a dependent spouse either had no retirement account or a lightly funded account. When the time comes for them to receive a substantial rollover from their spouse’s 401(k) to their IRA, the IRS provides for a one-time withdrawal in any amount. This could be a major tool for a spouse who is in a case with little cash in the marital estate and has the immediate need for cash. It might be the cash infusion they need to pay off a debt or cover their expenses as they transition into their new phase of life.

Four other techniques are highlighted and the blog entry is worth reading. The tax code is complicated, but if you know where to look it can also provide for some creative solutions to financial and tax problems.

____________________________________________________

Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a resident of Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter @AaronWeemsAtty