nine questions to ask about taxes.
by ed mendlowitz
how to build a stronger tax practice
divorce settlement planning attempts to help clients realize the reality of the financial situation and to suggest ways to settling the financial arrangements before extensive, expensive and drawn-out negotiations, depositions and litigation.
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who needs this service
divorce today has become commonplace. with 50 percent of first-time marriages ending in divorce it is a good bet that many of your clients are either in the process of getting divorced or considering it. a simple inquiry can tell you where the client is in the process.
why the accountant is suited to offer this service
the accountant is best suited to offer these services because the three financial elements of divorce fall into our expertise:
- allocating support payments into taxable alimony and nontaxable child support
- assisting in determining the value of the property settlement and the tax attributes and basis of the divided assets
- working out the post-divorce budgets and cash flow
we are also called upon to value operating businesses and to determine the actual income and cash flow from a business that one or both of the parties might own.
another thing accountants do is to help the parties place the finances in perspective. this is because of our years of experience with them and their finances and the understanding that comes with that. certain conflicts can arise because the relationship is usually with both parties, even if you have only been working with one spouse. however, this should not create a conflict when working with both spouses to try to settle it. we recognize that there will be conflicts in a litigation situation, and because of that, we usually decline to represent only one of the parties and we tell them that they should ask their respective attorneys to recommend a suitable financial advisor.
forensic or investigative accounting is something else that is used extensively in divorce and marital separation litigation. however, this is a specialty that requires, in addition to great adeptness in performing the work, a poised credible manner for articulating positions and findings under cross-examination in court.
introducing the client to the service
introducing the service is not that difficult. we find that people going through a divorce like to talk about it. they especially like to talk about the “excessive” money they will have to pay out, or the “paucity” of the money they will receive. their desire to talk combined with familiarity with the accountant, and the accountant’s financial and tax prowess, make for easy introductions into the type of things accountants can help them with. to get the ball rolling here are some questions you can ask clients about divorce and taxes.
- did you know there is a difference between alimony and child support in reference to taxes?
- did you know payments not made directly to a spouse can still be deductible alimony?
- did you know property settlements are not subject to gift tax?
- did you know you could end up owing capital gains taxes on property settlements?
- did you know remarriage bonuses should be part of property settlement agreements?
- did you know the custodial parent might be able to use head-of-household filing status?
- did you know the noncustodial parent might be able to claim dependency exemptions for their children?
- did you know you can deduct medical insurance payments made on behalf of your children even if you don’t claim dependency exemptions for them?
- did you know the beneficiary spouse should own the life insurance policy on her ex-spouse’s life?
finalizing the engagement
we charge for initial consultations. existing business clients usually are not billed for initial meetings or discussions. at the point that it appears they will move forward, we then set a fixed price, or a basis for billing.