You can rollover the gain from a residence to another residence within two years of a sale. But sometimes in a divorce, one spouse may move out and it may be some time before the divorce is finalized and the home is sold. One man thought he could get this rollover by using part of the funds from the divorce, but because he had not lived in the home as a primary residence within the preceding two years, the court denied the rollover and he was required to pay tax on the gain.
In other divorces, some parties- solely for tax purposes- still file joint
returns. However, if your spouse runs up huge tax debts, you could get hammered
by the IRS if he (or she) skips leaving you with the whole tab. Other situations
might be (Kiplinger's), "I'll pay off the car loans if you'll agree to lower
alimony payments". It might work, but if the other spouse files bankruptcy,
creditors could come after you for repayments. However, the bankruptcy Reform
Act of 1994 says that a divorced debtor cannot discharge such debts in
bankruptcy- in other words, leaving the other spouse saddled with the debt
they incurred (some exceptions apply). Further, a debtor cannot include in
bankruptcy alimony or child support payments owed to an ex-spouse. Some say
that unless you are absolutely positive about what your soon to be divorced
spouse is doing, then best to forego the joint return and do Married Filing
Separately. It may cost you a few extra dollars, but the subsequent potential
turmoil may be totally avoided.
DIVORCE: Here is a short list of the things to do if getting a divorce
I DO- THEN AGAIN, MAYBE NOT: If you start a second marriage, you may want to think about a new will or trust since the laws in different states can make substantial differences on who will get money and how much. For example, assume the man had three children from a prior marriage, married a woman with three children and then died in a common law state without a will. The wife would receive all the assets they acquired during the marriage plus one half of what he owned when he got married. The other half of his premarital assets would go to his natural children. The stepchildren would receive nothing (unless they were adopted.)
However in a common law state like Georgia, the stepchildren would still get nothing (unless adopted) and the rest of the inheritance pie would be split four ways. His wife and each of the three children would get one fourth of the assets. But before that, under Georgia law, his wife would be entitled to receive one year's support plus furniture.
And in Florida, a spouse is entitled to 30% of the other's estate unless he or she signs off. And if you died in several states, the surviving spouse has the right to live in the house for as long as he or she wants.
Prenuptial (and less commonly, post nuptial) agreements is another method that can determine who gets what- but you still need a will nonetheless. The will can spell out who's property is who's and avoids the miserable complexities of a court to figure it out after the fact.
Both the will and prenuptial agreements can still leave holes in proper planning and that's where the use of trusts are involved. These are great management tools (yes, they might be able to save some estate tax, but that is really not the real reason you usually consider them) since you can determine who gets what and when and even under what conditions. Further, if you should become incapacitated, a trustee you have selected may step in and run your affairs, business, literally all of your life that you cannot handle then.
Again, whatever you do, make absolutely sure you have at least a will. I
will go further by stating that leaving a surviving spouse with no will is
one of the most intolerable, appalling acts (actually a non action) a partner
could ever do. The extra time and emotion of going to court,
dealing with attorneys, children, etc., etc. during a time of extreme grief
could almost be called inhuman- all because someone (usually the man) is
unwilling to face his mortality. We're all going to die, folks. Don't screw
DIVORCE: 5/96 Here is a short list of the things to do if getting a divorce