Financial specialist Simon Brady asks a simple question; are your finances ready should you get divorced or your spouse were to die? Divorce and taxes; And what about your parents in their final days; will they, or YOU, outlive your money?

Episode Transcript

Intro:

Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.

Disclaimer:

The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.

Chip Franklin:

Well, welcome to Practical Tax. I'm Chip Franklin. I am with co-host. Of course the host is our tax attorney, Steve Moskowitz. Steve, I hope you're well.

Steve Moskowitz:

Doing fine Chip.

Chip Franklin:

It's a holiday weekend and we have a lot to talk about on the show today. Coming up a little bit later, we're going to talk about many people that are watching this, either are seniors, or they have parents that are either in nursing homes and or living with them. And a lot of that's changing. And we want to talk a little bit about later on the show about some of the tax advantages that you can take advantage of. Obviously some of the tax, just possibilities here that you can avoid. Also, if you're an entrepreneur or if you have side hustles, is a time to go long form. We'll talk about some of the tips for being self-employed in our Ask Steve segment.

But first let's talk about, well, the painful part of divorce. Joining us right now is Simon Brody. He is from www.angliaadvisors.com. He's from London originally. He worked at the UN in Manhattan for quite a while as a Financial Advisor and a ETF specialist before going on to found Anglia Advisors. It's a fee for service advisor firm. We'll get to that in a few minutes as well, but they offer personal advice and consulting services to young people, couples and family, for nationals, and also suddenly single. Those are people that are coming out of divorce and in some cases, widower or widowhood, without the inevitable conflicts of interest that many times the commission compensated sales people deal with. And he's joining us right here on Practical Tax on again, our streaming network. Simon Brody, say hello to Steve Moskowitz.

Simon Brady:

Hi Steve, how are you?

Steve Moskowitz:

Hi Simon, how you doing? It's very impressive, the UN.

Simon Brady:

It's certainly an interesting place. I wouldn't say it moves along at the speed of sound. You're probably not astonished to hear that there's an intensely high level of bureaucracy there, but it was definitely interesting. Yeah, really.

Chip Franklin:

That'll give us all a little room to breathe here. Okay.

Simon Brady:

There we go.

Chip Franklin:

So let's just jump into this and talk about the suddenly single thing, because I know this is something that you both share. Steve deals with this all the time and as well as you. Can we start with you Simon? How do people and especially women begin and sustain a financial plan at that point in their lives?

Simon Brady:

Yeah, it is an extremely triggering event on all levels. A divorce or a widowhood, but sticking with divorce for the time being. Most relationships tend to have an imbalance when it comes to being the financial decision maker within the household, you very, very often have one person who is taking control of a very, very high amount of it. And therefore by definition, the other person is shut out. And that may be an arrangement they came to perfectly amicably. But what happens when the relationship ends for one reason or another is you very often have one person who is entirely overwhelmed by having to deal with all this stuff. In some cases for maybe the first time in their lives, in their late thirties, early forties having to deal with this stuff which they'd always been able to outsource internally in the relationship. I should make the point that I am a CFP, a Certified Financial Planner.

There is another designation, a CDFA, Certified Divorce Financial Analyst. Those people are usually CFPs as well. And I did actually have the designation for a while. They deal with these individuals during the divorce process right up to the decree. So what they're doing, a lot of things is making sure that the other party is being clean in their financial disclosures, helping their own clients deal with it. But once a decree is completed, the CDFA takes its hat off and then becomes a Certified Financial Planner again. So I don't deal with individuals undergoing divorce. The day after the decree is announced, that's when I can work with people. So I make it a part of my practice that I particularly work with what I would call the junior partner in terms of the amount of work that they were doing on the finances prior to the dissolution of the marriage.

Chip Franklin:

It's hard stuff, Steve. Obviously this happens to you a lot. I mean, I can imagine it could be a corporate account or it could be a couple and they divorce. And what are some of the obstacles, the tax obstacles, and just in general that you find is this thing progresses?

Steve Moskowitz:

So the first thing is a determination should be made. Does the couple owe any taxes? And if the answer is yes, that amount should immediately be paid to the taxing authorities. And the reason for that is what usually happens is there's an agreement in the MSA, Marital Settlement Agreement, or the court order. And then what happens is, and that's what I'm going to tell you what supposed to happen and what really happens. So there's an agreement or an order that spouse one is going to pay the taxes and he or she just doesn't or can't and spouse two that wasn't supposed to pay a penny, waves that piece of paper, the IRS says, "Hey, the court ordered that my no good ex spouse is supposed to pay this. Don't look at me". And the IRS says that has nothing to do with the IRS. It has no effect on the IRS.

If that was a joint return, the IRS can collect it from either party and in full, in part, whatever they want to do. And I see that all the time in practice. People just don't live up to that and the other spouse gets stuck. That can be avoided by paying the taxes first. But suppose you say, "Oh no, you're watching this broadcast and it's already done". And that's where you are right now. One of the things that you might want to consider is something called innocence spouse. And what innocence spouse is say to you guys, is "Okay. Look, I had no knowledge and no benefit. And therefore I shouldn't be liable for the taxes, even though it was a joint return. Because that's an exception, a joint return husband and wife file joint return.

And then what happens is the legal mumbo jumbo is they're jointly in severally liable, meaning that the IRS can collect it all from one or the other or any way with the innocent spouse is saying, "Hey, don't look at me". And again, the two big things here, no knowledge, no benefit. So the IRS looks at that. The ideal case here is where, let's say husband had his own business and he spent all the money on drugs or gambling or something else. And didn't bring the money home and support the spouse. That's your best case of walking away from these taxes called innocent spouse. There's other things you can do too, but that's the first one you want to take a look at?

Chip Franklin:

Is the spouse supposed to be knowledgeable of the tax liabilities as much as the earner?

Steve Moskowitz:

That's a great question, Chip. Supposed to, or in reality, when you sign it, you're responsible for it. Whether you know about it or not. In reality, most people don't. I mean, think about it. You're an intelligent man. The last time you rented a car and the car rental agency handed you this book and said, "Here you go, Mr. Franklin". Were you really knowledgeable of all those terms Chip?

Chip Franklin:

No one reads that. It's like the contract with AT&T or when you get your iPhone and they send you that 15 page document that even if I read it, I wouldn't understand it.

Steve Moskowitz:

And nor would they change it. And then if something happens, some lawyer says, "Well, Mr. Franklin, here on page 97 in paragraph 3072, it clearly states and blah, blah, blah". So the bottom line is, that's why we call this Practical Tax. We have to be practical. I can tell you all the things that you should do to have the best possible tax situation, but you know what? That's not real life. So if you come into us and you say, "Well, look, here's what happened to me", we'll make the best of what you have. Just like a physician would do.

Chip Franklin:

Are you talking as how the IRS would be thinking or the state?

Steve Moskowitz:

The IRS just says pay up. The IRS doesn't get into that. They just get into, "Hey, pay up or they'll take it". It's the taxpayer's job to say, "Well, wait a minute now. There's a reason why I shouldn't have to pay you and one reason is innocent spouse". If innocent spouse doesn't work for you, you have all the other defenses too, like offering compromise monthly payment plan, penalty, abatements. But I would start off with trying to completely get away from it before you say getting just partially away from them.

Chip Franklin:

Wow. Let me ask another question. Simon, jump in. So say a couple gets divorced, and they have a settlement with attorneys, and then his past catches up with him a couple years later with an audit, and say she marries a person and has some means, can the IRS come after the means that she married into?

Steve Moskowitz:

Oh,