Janitor Bob Posted April 8, 2008 Report Share Posted April 8, 2008 Couple gets divorved in 2007....She has a retirement annuity....per divorce decree, the annuity must be distibuted between the two of them....So she does that and husband gets half of the $40,000 (so she tells me). The 1099-R is only in her name and SSN and is for the full $40,000.00. Now she tells me that since husband got half of that, she does not want to report the full amount...only $20,000.00 Is there a way to make both her and IRS happy on this? Quote Link to comment Share on other sites More sharing options...
indyscott Posted April 8, 2008 Report Share Posted April 8, 2008 How about Alimony? She reports the whole 40K in gross income, and adjusts off 20K as alimony. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted April 8, 2008 Author Report Share Posted April 8, 2008 How about Alimony? That was my first thought....would she just report that or should I do a 1099-Misc or similar form. I am doing both his and her returns...so I will report properly on each return....but did not know If I should formally have a 1099 showing the amount that went from her to him....never had a return with alimony before. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 8, 2008 Report Share Posted April 8, 2008 Couple gets divorced in 2007....She has a retirement annuity....per divorce decree, the annuity must be distributed between the two of them....So she does that and husband gets half of the $40,000 (so she tells me). The 1099-R is only in her name and SSN and is for the full $40,000.00. Now she tells me that since husband got half of that, she does not want to report the full amount...only $20,000.00 Is there a way to make both her and IRS happy on this? Whoa! There are several issues here that need to be addressed first. One, if the divorce states that he gets half, it SHOULD HAVE BEEN DONE AS A QDRO. If it was, then the trustee is wrong, and two new 1099Rs need to be issued, correcting hers to show half, and sending him one for his half. But if it was not done as a QDRO, then she has to pay tax on the entire amount, period. Now, if that is the case, the next question is, is this property settlement, [non deductible] or is it alimony? That is a legal question, because it's not alimony just because she pays him money. You have to look at all six rules to determine if it qualifies as alimony. Only if it does can she deduct it, and he pay tax on it. We've already had several threads on that subject, where I listed the six tests. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted April 8, 2008 Author Report Share Posted April 8, 2008 Whoa! There are several issues here that need to be addressed first. One, if the divorce states that he gets half, it SHOULD HAVE BEEN DONE AS A QDRO. If it was, then the trustee is wrong, and two new 1099Rs need to be issued, correcting hers to show half, and sending him one for his half. But if it was not done as a QDRO, then she has to pay tax on the entire amount, period. Now, if that is the case, the next question is, is this property settlement, [non deductible] or is it alimony? That is a legal question, because it's not alimony just because she pays him money. You have to look at all six rules to determine if it qualifies as alimony. Only if it does can she deduct it, and he pay tax on it. We've already had several threads on that subject, where I listed the six tests. Yes, KC...Thanks...I will be reviewing the divorce decree in more detail this afternoon to see just what happened, but this is also the divorce decree where it is stated that they must file MFJ for the year...so My I do not have a lot of confidence in it. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 8, 2008 Report Share Posted April 8, 2008 I would have zero confidence in this to have a QDRO if the document says MFJ after the divorce. Quote Link to comment Share on other sites More sharing options...
jainen Posted April 8, 2008 Report Share Posted April 8, 2008 >>this is also the divorce decree where it is stated that they must file MFJ<< I really don't understand what y'all fussin' about. If they file MFJ the way they agreed, it doesn't matter whether it's one half or two halfs because it all goes together anyway! Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted April 8, 2008 Author Report Share Posted April 8, 2008 >>this is also the divorce decree where it is stated that they must file MFJ<< I really don't understand what y'all fussin' about. If they file MFJ the way they agreed, it doesn't matter whether it's one half or two halfs because it all goes together anyway! ...aside from the fact that MFJ is wrong?....I guess nothing except that Quote Link to comment Share on other sites More sharing options...
lydia33 Posted April 8, 2008 Report Share Posted April 8, 2008 Yes, KC...Thanks...I will be reviewing the divorce decree in more detail this afternoon to see just what happened, but this is also the divorce decree where it is stated that they must file MFJ for the year...so My I do not have a lot of confidence in it. I had a clients that got divorced last year and it states in their divorce decree that they were to file a joint return for the tax year of 07. Legal, Finalized Oct. 07. What are they thinking? Quote Link to comment Share on other sites More sharing options...
jainen Posted April 8, 2008 Report Share Posted April 8, 2008 >>the fact that MFJ is wrong<< Is this the same divorced couple that claims they went over the cliff in April and the decree says to file MFJ anyway? Obviously someone is wrong, but I wouldn't be too quick to assume it's the trained professional managing the legal papers. If you ask the average divorcee whether the split-up is final, her response will likely range from mild obscenity to apoplexy, with the occasional death threat. Not the best environment for nurturing truth. Little things like the pig judge's sig or some stupid law about waiting period are irrelevant to sweetums and her new sugar daddy. And since you are representing both parties, you get a double whammy. Quote Link to comment Share on other sites More sharing options...
indyscott Posted April 8, 2008 Report Share Posted April 8, 2008 Well I learned something today! Can't say I'd ever heard of a QDRO before. The US DOL has a good presentation that tells all about them. http://www.dol.gov/ebsa/publications/qdros.html So, if the people involved in the original divorce decree didn't know any more about this than I did I wonder what remedy would exist. Back to court to get a QDRO? Quote Link to comment Share on other sites More sharing options...
grandmabee Posted April 8, 2008 Report Share Posted April 8, 2008 Well I learned something today! Can't say I'd ever heard of a QDRO before. The US DOL has a good presentation that tells all about them. http://www.dol.gov/ebsa/publications/qdros.html So, if the people involved in the original divorce decree didn't know any more about this than I did I wonder what remedy would exist. Back to court to get a QDRO? Remember the devorce is STATE law and we are working under FEDERAL law Quote Link to comment Share on other sites More sharing options...
Booger Posted April 8, 2008 Report Share Posted April 8, 2008 D-I-V-O-R-C-E. Great song by Tammy Wynette. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted April 8, 2008 Author Report Share Posted April 8, 2008 D-I-V-O-R-C-E. Great song by Tammy Wynette. OK....So I finally have time to read the document....It is NOT a divorce decree...it is Seperation Agreement...Does that change things? It states in the agreement that the Annuity belongs to him, but that he will assign the entire annuity contract to her solely and that he is reponsible for paying 1/2 of any taxes resulting from the transfer or withdrawal of the annuity. ....So it look like the 1099-R is correct? Quote Link to comment Share on other sites More sharing options...
jainen Posted April 8, 2008 Report Share Posted April 8, 2008 >>it look like the 1099-R is correct?<< Yep, looks like. And the lawyer of whom was proclaimed, "ought to fix the defect in HIS work for free," he was right too. And I humbly submit that I was right as well, alone in the forum. Anybody that's been in this business through more than one April 15th ought to have a healthy skepticism when clients tell us their family secrets. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 8, 2008 Report Share Posted April 8, 2008 >>it look like the 1099-R is correct?<< Yep, looks like. And the lawyer of whom was proclaimed, "ought to fix the defect in HIS work for free," he was right too. And I humbly submit that I was right as well, alone in the forum. Anybody that's been in this business through more than one April 15th ought to have a healthy skepticism when clients tell us their family secrets. I take that jab while hanging my head in disgrace. Once again the Mighty Jainen shows his superior intellect over the humble mortals of this board. But the OP said it was a divorce decree. If it WAS a divorce decree, then they could not file MFJ, and the work would have been defective. So I am not totally incompetent, just not able to look through the internet to find the true facts before they are posted. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
jainen Posted April 8, 2008 Report Share Posted April 8, 2008 >>the OP said it was a divorce decree<< Yes, I believe the original post (in the "Divorce Final" thread) did say "the decree plain as day." But these days recently haven't been all that plain. And anyway, I don't believe other preparers almost as much as I don't believe clients. Not that I believe lawyers, but I just can't believe ANY lawyer is going to tell his client to consummate a divorce by signing the ex's tax return. But don't hang your head so, Bulldog Tom. You know that if it were a real decree and it did say what it didn't, I would still have found something to disbelieve too. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 8, 2008 Report Share Posted April 8, 2008 Yes, I know you would. And, it would probably be a point of view none of us would have thought of. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
mgmea Posted April 9, 2008 Report Share Posted April 9, 2008 Might not Ohio be one of those rare states that has legal separations available as an alternate to divorce? I've never seen a legal separation personally, but the phrase is "divorced or legally separated" isn't it? Some more investigation might be in order to rule out that they are not "legally separated" under state law and thus considered single. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted April 9, 2008 Author Report Share Posted April 9, 2008 Might not Ohio be one of those rare states that has legal separations available as an alternate to divorce? I've never seen a legal separation personally, but the phrase is "divorced or legally separated" isn't it? Some more investigation might be in order to rule out that they are not "legally separated" under state law and thus considered single. It sure looks like a leagal separation to me....They appears before a judge and it was assigned a case number from Miami County Common Pleas Court....It looks Identical to divorce decrees that I have seen except that it states "Separation Agreement" instead of "Decree of Divorce"...I also see where there was a QDRO that assigned the annuity to the wife. Not sure if I can file them MFJ (which is better for them)..or if I need to go MFS and HOH Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 9, 2008 Report Share Posted April 9, 2008 Now that you have the QDRO, the answer to your original question: She steps into the place of the account holder. What does the sep agrmnt say? Does she get the full pension & the 1/2 is just a settlement, or was the distribution screwed up? If she got the whole check, then the 1099 is correct. Because of the QDRO, she did have the ability to do a direct roll over an IRA or she could have retitled with the same custodian if she wanted those specific investments. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted April 9, 2008 Author Report Share Posted April 9, 2008 Now that you have the QDRO, the answer to your original question: She steps into the place of the account holder. What does the sep agrmnt say? Does she get the full pension & the 1/2 is just a settlement, or was the distribution screwed up? If she got the whole check, then the 1099 is correct. Because of the QDRO, she did have the ability to do a direct roll over an IRA or she could have retitled with the same custodian if she wanted those specific investments. I think the 1099-R is correct....but I am confused by the part of the Separation Agreement that states "he is liable fpr 1/2 of any taxes incurred due to the transfer or withdrawal of the annuity. ...So now she owes state taxes because she withdrew the annuity and he is responsible for 1/2 of that. Is this obligation something that I, as the tax preparer, need to deal with, or is this obligation just between the two of them? It is tricky, because I will be doing returns for both of them.. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 9, 2008 Report Share Posted April 9, 2008 Sounds like the 1/2 of the taxes is just part of the settling of assets between them. You are in the middle because you're prep'g both t/rs. They will be both looking to you to come up with the $$ he's responsible for paying. What I'd do is complete her returns that will actually will be filed. Then make a dup of the returns & prep another set of returns for her without the distrib. Do fed & state. Don't look at the bottom line bal due or refund. Compare the total combined fed & state total tax liability with and without the distribution. The diff between the 2 should be the total taxes on the distrib. Then you calc his 1/2. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 9, 2008 Report Share Posted April 9, 2008 And, you need to treat them both as single. So one may be HOH, the other single. His obligation to pay her half of the tax on the distribution is just one more example of lawyers and the judge not really understanding tax law, so they try to make it simple. But it's an obligation between the two people, not on her or his tax return. Quote Link to comment Share on other sites More sharing options...
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