Tax Treatment on Sale of Principal Residence by Divorced Couples

Married couples are allowed up to $500,000 ($250,000 each) in profits, tax free from the sale of their principal residence, as long as they have owned and occupied the residence as a principal residence for at least two of the five years before the sale. Formerly, a spouse who moved out as a result of divorce lost his or her $250,000 deduction because it was no longer the principal residence. However, thanks to a change in the tax law, an ex-spouse can now retain that exclusion.

The law contains a specific provision relating to property used by the spouse of a former spouse pursuant to a divorce decree (26 U.S.C. § 121 (d)(3B)). This section states that “an individual shall be treated as using property as such individual’s principal residence during any period of ownership while such individual’s spouse or former spouse is granted use of the property under a divorce or separation instrument.”
 
This addresses the case of where an individual has retained ownership in the house but where the former spouse occupies the house for a period of more than 3 years from the time the owner (the non-occupying individual) has vacated the home. This allows the non-occupying individual to exclude up to $250,000 of gain when the house is sold, even though he or she did not actually occupy the home for two of the last five years before the sale.

To qualify, the spouse who moved out must remain an owner and the divorce or separation agreement must grant that spouse the use of the home. If a spouse who is the sole owner remarries, the new spouse must live in the house for two years to qualify for the full $500,000 exclusion.   

SOURCE: DivorceNet

Georgia’s New Income Shares Child Support Guidelines

The new Georgia child support guidelines become effective January 1, 2007, and apply to all pending civil actions on or after January 1, 2007. Under the new guidelines, there are several steps that are used to arrive at a child support obligation. First, the gross income of both the mother and the father is determined. This income includes amounts from all non-exempt sources and includes: salary, wages, commissions, self-employed income, bonuses, overtime pay, severance pay, pension and retirement income, interest income, dividend income, trust income annuity income, capital gains, Social Security disability payments, worker’s compensation benefits, unemployment benefits, judgments from personal injury claims or other civil cases, gifts, prizes, alimony from persons not in the subject case, assets which are used for support of family, fringe benefits that significantly reduce living expenses, and any other income including imputed income. Variable income such as commissions or bonuses must be averaged over a reasonable period of time.

After the gross income of both the mother and father is determined, the income may be adjusted in three ways. If there is self-employed income, there is a reduction for one-half of the self-employment taxes being paid. Secondly, if either parent is paying child support under a preexisting child support order, the monthly gross income of such parent is reduced by the amount of monthly support such parent has been actually paying. Finally, if either parent is supporting his or her own children living in the home, but who are not the subject of this child support determination, the court in its discretion may reduce the gross income after calculating a theoretical child support order. This final adjustment will be difficult to obtain since the court must find the failure to do so would cause a financial hardship on the parent and that such adjustment is in the best interest of the child in the case at hand.

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FACT OR “WHACKED”? MYTHS AND MISTAKES IN MILITARY DIVORCES

The following very informative piece was written by North Carolina family law attorney  Mark Sullivan and appeared on the Solosez listserv. He is a man of whom it can truly be said, "He wrote the book" on the subject of military issues in family law, because Mark is the author of The Military Divorce Handbook.

INTRODUCTION: As a service to our legal assistance clients, we have prepared this handout with frequently asked questions on issues involving an overview of the divorce process. It is, of course, very general in nature since no handout can answer your specific questions. We do ask, however, that you read over these explanations carefully in connection with your visit to our legal assistance attorneys so that you may have the fullest information available to help you with your family law problem. Please send comments, corrections and suggestions regarding this pamphlet to the address at the end of the last page. *

INTRODUCTION

In too many military divorces, a client or lawyer makes a costly mistake.

Often it’s because the client is unaware of the options or the law, someone relies on rumors and myths, "barracks lawyers" and buddies provide well-meaning but erroneous information, the attorney is unaware of the rules for military retirement and its division, or the rules themselves are too complex, illogical and confusing. This LEGAL EAGLE will help you sort out truth from "urban legends," the fact from the " *whacked*." Since this information is necessarily brief, ask your lawyer for a further explanation if you need to learn more.

HALF THE MILITARY PENSION?

"It was not his fault," Mrs. Green explained when she brought her new husband, retired Army Master Sergeant Jake Green, to see the divorce lawyer. "He was very upset when he went through the divorce from his ex-wife, Jane. He was confused. He didn’t have a lawyer and he didn’t pay attention to what he was signing."

"You’re right about that, ma’am," the new divorce attorney replied. "I’ve reviewed these divorce papers and it appears that he signed away half of his military pension to his ex-wife, even though he’d only been married to her for ten of the thirty years he was in the Army. That’s a huge problem, and he wasn’t forced to do it he did it willingly. Jane got way more than she should have."

*FACT #1:* *Unless the marriage lasts for the entire military career, you

need to know about the "marital share."*

MSG Jake Green didn’t. He gave away half of his pension, when he should have divided only the marital share of the pension. The marital share is that acquired during the marriage while in military service. It begins with the wedding or the start of military service, whichever comes later. It ends usually on the date of marital separation or divorce, depending on state law. In Jake’s case, he gave away too much of the pension 50% to his ex rather than the correct percentage, which probably would have been closer to 16%. "It’s all his lawyer’s fault," shouted the new Mrs. Green. "He didn’t know a thing about dividing military retirement pay!"

SURVIVOR BENEFIT PLAN BASICS

"That’s for sure," replied the new divorce lawyer. "It’s obvious he didn’t know anything, because that lawyer also missed out on the Survivor Benefit Plan. He should have written the agreement to award the SBP to Jane, the former Mrs. Green, but he completely overlooked it. It’s left out. He probably wasn’t even aware it was available."

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