Archive: June 2019

The divorce process became significantly more complicated this year with the code changes. Not only did a number of Americans end up owing more than expected, but along with these changes also came a slew of unforeseen consequences. For example, the spouse paying alimony can no longer deduct the payment, and the spouse receiving alimony no longer has to pay taxes on it as income, making alimony payments in general costlier, and divorce negotiations more strained. This loss is not insignificant: for some, it amounts to thousands of dollars; and its loss becomes more and more significant as the income difference increases.

In an effort to offset some of the losses associated with the loss of the alimony deduction, as one example, a number of divorce attorneys and accountants are resorting to other money saving (creative) techniques, as we discuss below.

One way to try and get around this loss is to set up a trust for the spouse who would otherwise receive alimony. Known as “grantor trusts,” they are effectively designed to pay out income without the tax burden, and are funded with assets designed to generate income. It is essentially a property settlement that must be established after the divorce decree has been finalized. Trusts set up like these ensure that payments continue even if the paying spouse passes away and when the receiving spouse passes away, the rest goes to heirs. However, some accountants have warned that the IRS could see this is simply disguised alimony.

During stressful times as going through divorce proceedings, it is common to let important issues and accounts, such as insurance coverage, fall by the wayside. However, during this time, it is extremely important to take a close look at any and all insurance policies in order to foresee whether your insurance policies may be impacted once your divorce is finalized – in order for you to strategically prepare.

Below, we discuss the two main types of insurance that are typically relevant during divorce: health and life insurance.

When a couple is married, frequently, one spouse is covered in terms of their own health insurance on the other’s health plan. In order to help the spouse that does not earn an income after divorce, the purpose of the Consolidated Omnibus Budget Reconciliation Act (COBRA) is to allow them to continue the coverage under their ex’s plan for three years afterward.

However, while COBRA is convenient in terms of continuation of existing coverage, it is not necessarily the most affordable option. In addition, the time limit makes it somewhat impractical after a certain amount of time has passed.

Seven months after Hurricane Michael hit Florida, the estimated losses from the Category 5 storm are currently over $50 billion. Property damage alone reportedly accounts for more than $5 billion, and many property owners’ claims have gone unpaid by insurance companies that are supposed to make them whole again in times like these. In addition, federal disaster relief funding has been stuck in gridlock and affected by other devastated areas, such as California and Iowa, as well as other hurricane effected neighbors of Florida.

Hurricane Michael hit Florida with significantly more force than even Hurricane Katrina hit Louisiana. The storm was especially felt in coastal cities such as Apalachicola, Panama City, and a number of others; shredding boats, businesses, and homes, and causing a number of people to go missing. People not only lost property, but a number of individuals died as well as a result of the disaster. To date, some residents are still without power. Even a number of Florida parks are still closed today. For example, the hurricane destroyed 80 to 90 percent of Florida Caverns State Park and its buildings. Thousands of trees are still uprooted throughout the state and its national forests, with agricultural and forestry losses representing more than $3 billion. There is no question that, in order to rebuild, people are going to need a lot of help.

As attorneys who regularly practice in business formation here in Florida, one recent question we have received is whether an S corporation should switch to a C corporation after the passage of the Tax Cuts and Jobs Act, and whether there is a corresponding ability for C corporations to exclude any gain from the sale of stock held for more than five years.

Below, we discuss this possibility under section 1202 and the potential to gain a huge tax break by switching to a C corporation. In a nutshell, there is some inconsistency within the statutory language which makes how you convert from an S to a C corporation very important in this process.

What Section 1202 Does & Qualified Small Business Stock

Section 1202 allows for shareholders who acquire qualified small business stock after September 2010 and hold onto it for five years to sell that stock and exclude it as declared income the greater of $10 million or 10 times the shareholder’s basis in the stock. However, there are a number of requirements that must be met in order for stock to qualify as qualified small business stock; requirements that sometimes confuse even the best tax advisers, attorneys, and shareholders alike.