Sunday, November 27, 2011

Divorce Tax Tips

Ten Divorce Tax Tips

Getting a divorce is a painful experience for your client, but you can help ease the pain by ensuring that the settlement will protect your client's tax interests. The following ten tips, when used correctly, can save your client, and sometimes both sides, money in a divorce action.

Tip 1: Negotiate the Tax Exemption

If the divorce decree is silent regarding the dependency exemption, it remains with the custodial parent (I.R.C. 152(e)). The custodial parent is defined as the parent who has physical placement of the child for the greater portion of the calendar year (Treas. Reg. 1.152-4(b)).

The exemption is often one of those frustrating issues that has more emotional than financial significance. Much as the custodial parent does not want to give up the exemption, for example, it is not worth the attorney fees to litigate. One suggestion for reaching a settlement: Many states will allow the award of the exemption to be conditional on payments being current by the end of the year. The custodial parent may agree that getting the support on a regular, timely basis during the year is well worth the price of giving up the exemption. Try this language in the decree specifically making the award conditional on support obligations:

Tax Exemptions and Deductions. The wife shall be entitled to claim the youngest child, John, Jr., as an exemption, dependent, and deduction for all tax purposes, state and federal. The husband shall be entitled to claim the oldest child, Linda, as his exemption, dependent, and deduction for all tax purposes, state and federal, provided all support payments provided herein are current and timely. Each party shall duly execute Form 8332 of the Internal Revenue Service to reflect the foregoing.

Please note that support obligations can be read broadly enough to include medical expenses and other child-related obligations.

Tip 2: Don't Waste the Tax Exemption

The tax exemption is wasted under one of two circumstances: If it goes to a parent with not enough income or the one with too much income.

Quite simply, if there is no income, there can be no deduction. For 1996, if the income of a single person is less than $6,400 per year or if the income of a person filing as head of household is less than $8,250 per year, the extra exemption is wasted.

Similarly, don't waste the exemption on the rich. For taxpayers whose adjusted gross incomes for 1996 exceed $114,700 for a single taxpayer, or $143,350 for head of household, personal exemptions phase out by 2 percent for every $2,500 of income over those amounts. The phaseout is complete at $237,200 for a single taxpayer and $265,800 for head of household (I.R.C. 151(d)(3)). It is a waste to give these taxpayers the extra exemption.

Tip 3: Two Can Be Head of Household (Sometimes)

Under IRS rules, head of household status follows placement of children and cannot be negotiated or allocated by a court (I.R.C. 2(b) and Treas. Reg. 1.2-2(b)). However, when there are two or more children and equal placement, parties can arrange for both parents to claim head of household status.

Sample divorce language: Tax Filing Status. For the purposes of tax filing status, the parties agree that Catherine lives the majority of the time with the husband and Laura the majority of the time with the wife. The parties agree not to assert any contrary position with any taxing authority.

The parties may wish to arrange one special day at the end of the year for each child to spend with his or her "tax parent." In fact, this could become a game; parents could spend some of their tax savings on a special activity with their "tax child." How's that for an "everyone wins" scenario? The parents save money on taxes and the kids have a good time.

Tip 4: Some Attorney Fees Can Be Tax Deductible

People hate to pay their divorce lawyers, perhaps more than they hate to pay other types of lawyers. Criminal defendants usually have publicly paid lawyers. Personal injury litigants pay their lawyers with "found" money from their recovery. Business clients treat attorney fees as a cost of doing business. Divorce clients, who are at a financially disadvantageous time in their lives, pay lawyers with personal funds that could be used for other things more enjoyable than a divorce..

Some of the sting can be taken out of attorney fees by maximizing the deductibility to the client. Plus, due to the 2 percent floor, it may encourage the client to pay the fees on a timely basis to save money on taxes.

While the costs of getting the divorce are personal and are not deductible (I.R.C. 262; U.S. v. Gilmore, 372 U.S. 39 (1963)), some of the costs of the divorce are deductible if the client itemizes deductions and the total miscellaneous deductions exceed 2 percent of the payor's adjusted gross income. Deductible costs may include:

  1. Fees for tax planning.
  2. Fees for obtaining taxable income.
  3. Fees for securing interest in qualified retirement plans.

Tax planning will be necessary to maximize the advantage of deductibility. Other tax deductible costs, such as paying for tax return preparation, should be paid in the same calendar year as the attorney fees.

If the attorney fees are paid over more than one year, which is frequently the case when the retainer is paid at the beginning of the action and the balance of fees at the end, the deductible portions of the fees may have to be prorated over the years paid.

Tip 5: Some Attorney Fees Can Be Capitalized

While attorney fees in relation to conservation of interest in property are not deductible, clients may be able to add these costs to the capital basis of the property. Although there may be no immediate tax gain, such capitalization can increase depreciation (if the property is depreciable) or decrease the gain (or increase the loss) when the property is sold.

If a number of assets are involved in the litigation, the fees must be specifically allocated among them, or the IRS can apply a prorated allocation of the costs (Bernard D. Spector, 71 TC 1017, rev'd on other grounds, 641 F.2d 376 (5th Cir. 1981)).

Of course, there must be a basis for deductibility in the legal services performed in the case. Careful billing records should be kept that delineate services on behalf of a particular asset.

Tip 6: Just Calling a Payment "Maintenance" Doesn't Necessarily Make It Tax Deductible

I.R.C. 71, which defines alimony and maintenance payments, applies to any interspousal payments intended to be deductible whether they are labeled spousal support, section 71 cash periodic payments in lieu of maintenance, or family support. If your client intends the payments to be deductible, the requirements of this section must be met. They are:

  • Payment must be in cash (I.R.C. 71(b)(1)). Services or a transfer of property other than cash cannot be considered alimony.
  • Payment must be made pursuant to a divorce or separation instrument; that is, a decree of divorce or separate maintenance or a written instrument incident to such decree, a written separation agreement, or a decree requiring payments for spousal support/maintenance (I.R.C. 71(b)(2)).
  • Payment must be to or on behalf of spouse (I.R.C. 71(b)(1)(A)). Payments to third parties (medical or dental payments, health insurance, rent, mortgage payments, or tuition) may qualify. They cannot be voluntary and must meet all other requirements of I.R.C. 71. For example, payment of a mortgage obligation qualifies only to the extent of the recipient's ownership interest in the property. If in the divorce, title to the real estate was transferred to the recipient spouse, the entire payment may be deductible. However, if the payor has any ownership interest in the property, only part of the payment may be considered alimony, as the payor would be satisfying his or her own obligation on the mortgage and not paying the entire amount on behalf of the recipient.
  • The divorce or separation instrument cannot designate the payments as nontaxable and nondeductible (I.R.C. 71 (b)(1)(B)). Parties can elect whether payments shall be treated as taxable or nontaxable or the court can so decree. The I.R.C. indicates that in the absence of language to the contrary, it can be assumed that the intent was that the payments are deductible to the payor. Whenever there are interspousal payments, it is much better practice to specifically designate the intended tax result of the payments.
  • . Payor and payee spouses cannot be members of the same household at the time the payment is made (I.R.C. 71(b)(1)(C)).
  • The payments must terminate upon the payee's death (I.R.C. 71(b)(1)(D)). There can be no liability to make any payment for any period after the death of the payee (no mention of payor); and there can be no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse. Don't rely upon state law providing for termination of payments upon death. Specifically provide in the final settlement agreement that the payments terminate upon the payee's death. (See Treas. Reg. 1.71-1T Q/A-11 and Q/A-12.)
  • Don't disguise child support or property division payments as maintenance (I.R.C. 71(c) and (f)).

Tip 7: Avoid the "Child Support" Trap of 71

I.R.C. 71(c) requires that no portion of the payment can be fixed as child support. The word "fix" means that a reader would be able to precisely determine what portion of the payment is alimony and what portion is child support. Reference to a specific dollar amount need not be made in the instrument for a payment to be fixed as child support. (See Sperling v. Commissioner, 726 F.2d 948 (2nd Cir. 1984) and Abramo v. Commissioner, 78 T.C. 154 (1982).)

The IRS recognizes that the laws of most states allow for payments that are a combination of maintenance and child support. In Wisconsin these payments are called family support. With the passage of child support percentage standards, over the years practitioners have heard frequent rumblings from the IRS as to whether these percentages would be imputed in the family support payments, making such portion of the payment nondeductible, as that portion is for child support. If the instrument does not specifically provide a mechanism for determining what portion of each payment is actually for child support, the entire payment will be treated as alimony (Neu-Kraemer v. Commissioner, 52 T.C.M. (CCH) 363 (1986)).

No portion of the payment can be identified as "child support." However, even if the instrument does not identify a portion as child support, if the instrument specifies that the payment is to be reduced upon an event related to a child (such as the child attaining a specific age, marrying, dying, leaving school, or similar contingency) or at a time that could clearly be associated with such contingency, the IRS will treat that payment as child support; it will not qualify as alimony and will not be deductible to the payor. This provision frustrates many family support agreements that provide for automatic step downs as each child reaches the age of majority.

Even if the payments would otherwise qualify as alimony and the instrument does not explicitly provide for a reduction in the payment contingent upon an event related to a child, there are two situations in which the reduction of payments will be presumed to be clearly associated with events relating to a child:

  1. 1. The payments are reduced not more than six months before or after a child is to attain the age of 18, 21, or the local age of majority.
  2. The payments are reduced on two or more occasions that occur not more than one year before or after a different child of the payor spouse attains a certain age between the ages of 18 and 24 inclusive. (Treas. Reg. 1.71-1T Q/A-18. See example in the temporary reg.)

    Note that a payment may be treated as fixed and payable for the support of a child of the payor even if other separate payments are detailed in the instrument for the support of the child (Treas. Reg. 1.71-1T Q/A-16).

Tip 8: Avoid the Recapture Rules of 71
The recapture rules in I.R.C. 71 are meant to discourage front-end loading and thus discourage disguising property divisions as deductible alimony payments. Unless you're consciously doing some tax planning utilizing this vehicle, you should avoid the recapture rules.

Note that over the past dozen or so years, various minimum term and recapture rules have applied. The 1986 act contained a provision allowing spouses to modify pre-1987 instruments to take advantage of the new legislation (T.R.A. 1843(c)(2)(B)(1986)).

The 1986 act that applies to instruments executed after December 31, 1986, provides for a three-year look back; recapture occurs only in the third year; and the reduction cushion is $15,000. In year three, recapture occurs if: (1) alimony paid in year two exceeds payments in year three by more than $15,000; or (2) alimony paid in year one exceeds the average annual alimony paid in years two and three by more than $15,000. In both cases, the excess is recaptured.

There are exceptions to this rule: When the payment ceases upon the death of either spouse or remarriage of the payee spouse, or when the payments fluctuate and are not within the control of the payor spouse (i.e., payor pays a fixed portion of income from a business or property, or employment compensation).

Tip 9: Transfers of Property Between Spouses Tax Free
The Deficit Reduction Act of 1984 enacted I.R.C. 1041 and sought to alleviate many problems and inconsistencies relating to the transfer and taxability of appreciated property under the Davis case (Davis v. U.S., 370 U.S. 65 (1962)).

Property transfers between spouses are governed by I.R.C. 1041. The general rule is that no gain or loss is recognized on a transfer of property from an individual to a spouse or former spouse; but in the case of a former spouse, no gain or loss is recognized only if the transfer is incident to a divorce. A transfer of property is incident to a divorce if the transfer (1) occurs within one year after the date on which the marriage is dissolved, or (2) is related to the cessation of the marriage. The temporary regulations provide that transfers related to the cessation of marriage must be pursuant to the divorce or separation instrument (including modifications) and must occur within six years of the date the marriage ends.

The transfer is treated as a gift and the transferee spouse acquires the transferor spouse's basis. Likewise, the holding period of the transferor will carry over and "tack" and become the holding period of the transferee. I.R.C. 1041 nonrecognition treatment applies to losses as well as gains.

Note that transfers of property prior to marriage are not covered by I.R.C. 1041. Premarriage transfers of property pursuant to the terms of a prenuptial agreement will result in the recognition of gain or loss.

The sale or transfer of the marital home, however, requires special considerations. Timing of the sale can save the parties significant taxes and benefits. You should be familiar with the I.R.C. sections relating to deferment of recognition if the proceeds are reinvested in a new residence within two years and the one-time exclusion of $125,000 of gain under I.R.C. 121. For more information, consult the many excellent articles written on this subject and enlist the advice of a good accountant familiar with tax law in this area.

Tip 10: U.S. Savings Bond Interest Accrued Must Be Recognized on Transfer of Bonds
Generally, transfers of publicly traded securities pursuant to a divorce instrument result in no recognition of tax at the time of transfer. U.S. Savings Bonds are an exception. The transferor must report as income all interest on the bond that has been earned up to the date of transfer that has not been previously reported. The transferee spouse will be taxed on interest earned after the transfer, which can usually be deferred until the bond is cashed in or matures.

Sidebar: For More Information
There are many excellent publications available from the IRS free of charge that contain a wealth of information, including:

  • Publication 503: Child and Dependent Care Expenses

  • Publication 504: Divorced or Separated Individuals

  • Publication 523: Selling Your Home

  • Publication 554: Tax Information for Older Americans

  • Publication 555: Federal Tax Information on Community Property

Sidebar: Alimony Recapture Worksheet

Step 1: Calculate Recapture for Year 2
1. Alimony paid in year 2 $______
2. Alimony paid in year 3 $______ plus $15,000 ______
3. Subtract line 2 from line 1 (not less than zero)______

Step 2: Calculate Recapture Base for Year 1
4. Alimony paid in year 2 ______

5. Amount from line 3 above (year 2 recapture) ______
6. Subtract line 5 from line 4 (not less than zero)______
7. Alimony paid in year 3 ______
8. Add lines 6 and 7 ______
9. Divide line 8 by 2 ______
10. Floor for recapture 15,000
11. Add line 9 to line 10 ______

Step 3: Calculate Recapture for Year 1
12. Alimony paid in year 1 ______
13. Amount from line 11 above ______
14. Subtract line 13 from line 12 (not less than zero) ______

Step 4: Calculate Total Recapture
15. Amount from line 3 ______
16. Amount from line 14 ______
17. Add line 15 to line 16 ______

Line 17 is the total recapture amount

This article, was NOT written by Law Offices of Commander & Carlson, but is placed in our web to avoid you having to jump to to get it The article is still current even after all these years . It was written BY SHARON DREW AND GREGG HERMAN of Milwaukee. and originally appearred inThe Compleat Lawyer, Summer 1996, Vol. 13, No. 3

Post-Divorce Checklist

Post-Divorce Checklist


  • Divide all property according to divorce decree.
  • Re-title ownership of assets, including your home and all motor vehicles, and inform mortgage company, if any, of changes in ownership of real estate.
  • Change the name of responsible party on utility bills, and notify auto insurer.
  • Update your mailing address with credit card companies, banks, state motor vehicle department and insurance companies.
  • If your name was changed as a result of the divorce, get a new social security card, driver’s license, passport and credit cards.

Financial Conditions

  • Review your budget by monitoring income and expenses.
  • Update financial plan and review all investments.
  • Change beneficiary designations on life insurance, 401ks, pensions and IRA accounts.
  • Close joint safe deposit boxes and post office boxes, and open new ones, if needed.
  • Obtain a new copy of your credit report to make sure that the accounts you intended to close were actually closed and that your credit agency file has been updated.
  • If you were married for at least 10 years before divorce, you are entitled to make a claim against your former spouse’s Social Security.

Retirement and Estate Planning

  • If a pension, 401k or IRA was divided as a result of the divorce, make sure a Qualified Domestic Relations Order was prepared by the attorneys, agreed to by the court, submitted to the fund administrator and implemented.
  • Prepare new wills and trust documents.
  • Review your estate plan, and update if necessary.


  • Obtain life insurance naming your former spouse and/or children as beneficiaries to ensure continued support if you should die, if required by the divorce decree.
  • Make sure you are covered by health insurance, either through COBRA benefits, through your employment or via self-insurance.
  • Make sure you understand the terms and conditions of all insurance policies.


  • Get social security numbers of your ex-spouse and children, as they may be needed for tax returns.
  • Ask lawyers and experts involved in the divorce to provide a written document indicating the portion of fees that can be deducted under IRS Code §212.
  • Retain all taxes returns and supporting papers for at least 3 years.
  • If you received assets from your former spouse in the divorce, request tax basis records immediately after the divorce is finalized.

Child Support, Alimony and Custody

  • Keep records of alimony and child support payments made to, or received from, your former spouse.
  • Since alimony and child support are typically paid as a percentage of the former spouse’s income, spouses should request W-2s, Form 1099, Schedule K-1 and Form 1040 from a former spouse after January 1st to verify income and calculate proper support.
  • Keep records of your children’s medical costs, including insurance claims, copays and unreimbursed medical expenses. Such costs are typically split in some percentage after the first $250.
  • Custodial parent should maintain a record of the costs of raising the children and compare the costs with the child support being paid by the non-custodial parent.
  • Track all costs once children enter college. Contribute to college savings and tuition payments in accordance with divorce agreement or judgment.
  • If co-parenting is an issue in the divorce, keep records of how the other parent’s visits with children went and identify any specific problems that arose.
  • Keep your scheduled visitation times with your children.
  • Pay all support when due.
  • Update children’s school records about contact information for you and your former spouse.

(This excellent Post-Divorce Checklist was distributed by WithumSmith+Brown, PC, Certified Public Accountants, at the 18th Annual Conference of the New Jersey Association of Professional Mediators (NJAPM).

Friday, November 25, 2011

The Stranger Isn't The Danger

When I was speaking at a conference last week, one of the women in the audience bemoaned the fact that "Stranger Danger" is no longer the focus of child safety education, training and publicity, as it was previously. I explained to her that the reason for this is that the entire focus on strangers was a mistake! The real danger to children rarely comes in the form of abduction or molestation by a stranger. Statistics regularly show that in 85-90% of the cases the victimizer is an adult who is known to the child. Often it is a trusted member of the family- the uncle, cousin, step-father and even the natural parents. Other times it is the teacher, coach or minister. These are people who have close and repeated access to the child. These are the people who children (and parents) need to watch closely.

It also is true that children who have not been abused rarely report abuse. It is difficult for them to come forward and talk about what happened because it does involve a person with whom they have a relationship. Often they are faced with disbelief and lack of support from their own family! When they do make a report, they need to be evaluated by an expert in the field and given the assistance that they require in dealing with the situation, even if it disrupts the family unit.

Tuesday, November 15, 2011

If You See Something, Say Something

The recent events at Penn State involving the child abuse by long-time coach Jerry Sandusky with the apparent knowledge of a number of people on the coaching staff and in the university administration reminded me of my own experience 13 years ago when my daughter had just started kindergarten at a small school. It came to light that the director of the after school program was a pedophile. He was arrested for taking photographs of the boys in the locker room. It subsequently came to light that more was involved. All of the parents received calls that we needed to explain to our children that it would be on the news that night that he was arrested and that he was a pedophile. That would seem to be a pretty tall order for the parent of a kindergartner except that my daughter had already told me that he was a pedophile (not using the term, of course), and I had done nothing about it.

She had told me that Mr. B always had the boys sit on his lap to do their homework. He did not let the girls do that. He was "mean" to them. He would hug the boys and wrestle with them. He would go watch the boys sports practices at 6:00 a.m. every morning even though he wasn't a coach. He would like to be in the locker room. This is classic pedophile behavior.

I did not say anything because quite frankly I had a daughter, so I knew she was not at risk. I also was new to the school and did not want to look like a troublemaker. I was counting on someone else who had been there longer to take care of it. I assumed that if a child in kindergarten could spot the problem that a teacher, parent or administrator could see it too. Apparently not!

When the story broke, it was a media sensation because of the prestige of the school. There was television coverage, and a public meeting was held at which the Commonwealth's Attorney appeared to assure the parents that Mr. B would be locked up forever. School officials and parents spoke one after another about how crafty and sly he was to be able to ingratiate himself into the school community and cover up his pedophile tendencies without anyone knowing. Finally, in frustration, I stood and spoke and told them that that the problem was not how crafty he was but how people who saw something didn't say anything. That would include me. If a kindergarten student saw it. Others surely did too. I should have said something. They should have too! It was silence that allowed him to continue! I have changed a lot in 13 years. Today if I see something, I say something. Everyone should.

Sunday, November 13, 2011

Dropping Criminal Charges

I was hit and filed assault and battery, I was not able to drop charges afterwards. If I don't go to court will I get in trouble?

I was in an argument with my boyfriend's mom. She swung at me. I blocked her but she still hit my arm, I filed charges. I'm leaving state and haven't even been served yet but I 'want to go to court.

If it was important enough to tie up the services of the authorities to file the charge to begin with, it should be important enough to return for trial. If it was not, then you probably should not have started this. Part of the reason that the courts are clogged up is just because of situations like this. Despite this, if you have not been served with a subpoena, you will not be able to be charged with a failure to appear. Your non-appearance will cause at least two court appearances, in all likelihood and will inconvenience all involved.
What people do not understand is that once they invite the law into their lives, they cannot say "never mind" when it no longer interests them to proceed. The bottom line is that you should not invite the law in unless you plan to follow through with what you began.
Legal disclaimer: This response does not create an attorney-client relationship and is intended for general information purposes only.

Modification of Spousal Support

What date do spousal support arrears start - from date papers filed or dater party served

Ex filed a motion( papers in court) before I was served with paperwork. Wants to reduce spousal support. IF REDUCED- what date would reduction start from? Date I was officially served? OR date papers filed in court? Virginia

Pursuant to Virginia Code Section 20-109, the court can modify spousal support set by the court.
This statute provides:
A. Upon petition of either party the court may increase, decrease, or terminate the amount or duration of any spousal support and maintenance that may thereafter accrue, whether previously or hereafter awarded, as the circumstances may make proper. Upon order of the court based upon clear and convincing evidence that the spouse receiving support has been habitually cohabiting with another person in a relationship analogous to a marriage for one year or more commencing on or after July 1, 1997, the court shall terminate spousal support and maintenance unless (i) otherwise provided by stipulation or contract or (ii) the spouse receiving support proves by a preponderance of the evidence that termination of such support would be unconscionable. The provisions of this subsection shall apply to all orders and decrees for spousal support, regardless of the date of the suit for initial setting of support, the date of entry of any such order or decree, or the date of any petition for modification of support.

B. The court may consider a modification of an award of spousal support for a defined duration upon petition of either party filed within the time covered by the duration of the award. Upon consideration of the factors set forth in subsection E of Sec. 20-107.1, the court may increase, decrease or terminate the amount or duration of the award upon finding that (i) there has been a material change in the circumstances of the parties, not reasonably in the contemplation of the parties when the award was made or (ii) an event which the court anticipated would occur during the duration of the award and which was significant in the making of the award, does not in fact occur through no fault of the party seeking the modification.

With regard to the date of retroactivity, Virginia Code Section 20-74 governs. This statute provides:
"No support order may be retroactively modified, but may be modified with respect to any period during which there is a pending petition for modification in any court, but only from the date that notice of such petition has been given to the responding party."
Legal disclaimer: This response does not create an attorney-client relationship and is intended for general information purposes only.

Thursday, November 10, 2011


Several years ago my accountant gave me a mug which had the inscription, "I See Stupid People." It was funny. It was not entirely accurate though. Usually, I see people who are smart enough but who are doing some fairly stupid things. It can be the situation that they are in or the emotions that they are feeling that cause this.

I have written before about how parents in custody cases make mistakes by bringing their children into the fray or by using their children as messengers, among other things. I also have suggested that you are ill-advised to invite the law into your home by initiating Child Protective Service Complaints or filing criminal charges, unless there is a compelling reason to do so.

The most unbelieveable actions, however, are in the financial area. People often are more than willing to take themselves down so long as their spouse goes down too. Jobs are quit. Businesses are lost. Houses are foreclosed on. Cars are repossessed. Everyone's credit is trashed!

It is true that nothing is certain but death and taxes. It also is true that the average non-corporate American pays plenty in taxes. Under normal circumstances, would anyone volunteer to pay extra? Probably not. In divorce cases, a still married, but separated, spouse will file an income tax return using the married filing separately status...just because he or she can. Even though it is the highest tax rate. Even though it costs them money! It is as if paying extra taxes themselves is worth it so that their spouse will have to pay too. Note that there are occasions when there are valid reasons (financial or legal) for using this filing status instead of filing a joint return. This should be a business decision, not an emotional one. Talk to your lawyer and your accountant about the best filing status. The goal should be to pay your fair share, but nothing extra, in taxes.

Sunday, November 6, 2011

Federal Adoption Tax Credit

Federal Adoption Tax Credit


Since 2003, families who adopted a child with special needs from foster care could claim a federal adoption tax credit even if they had no adoption expenses. Children who receive adoption assistance/subsidy are considered children with special needs. Other adoptive families are also eligible for the credit, but must have (and be able to document, if requested by the IRS) qualified adoption expenses.

The tax credit became refundable for 2010 and 2011. A refundable tax credit is one you get back regardless of what you owe or paid in taxes for the year.
Families who adopted from 2005 to 2009 may be able to benefit from the refundable credit because credits from those years can be carried forward until 2010. (Families who adopted in 2003 and 2004 may be able to take some limited advantage of the credit but will not benefit from refundability. Families who adopted earlier will not benefit from the credit if they did not take it already.)

The amount of the credit is based on the year the adoption finalized:

2012 $12,650
2010 $13,170
2009 $12,150
2008 $11,650
2007 $11,390
2006 $10,960
2005 $10,630
2004 $10,390
2003 $10,160

The credit is claimed one time for each adopted child with special needs.
Below, we explain the basics of the adoption tax credit.

To be eligible for the credit, you must:

  • Have adopted a child other than a stepchild — Children who receive a monthly adoption subsidy payment have been determined by the state to have special needs, so these children are eligible for the full tax credit without documenting expenses. Families who adopted children without special needs are also eligible, but need to have (and be able to document, if asked) qualified adoption expenses.

  • And be within the income limits — How much of the credit you can claim is based on income. In 2010, families with a federal modified adjusted gross income above $222,520 cannot claim the credit; families with incomes above $182,520 can claim part credit. Adoptions from previous years had different income limits.

You will need to prove the adoption by providing the IRS with a copy of the adoption decree. Families who adopted a child with special needs must also provide a copy of the adoption assistance agreement or a letter from the state determining that the child has special needs.

If You Adopted in 2011

You will claim the credit when you file your 2011 taxes, typically in early 2012. The forms for the 2011 adoption tax credit have not been released yet. Read our fact sheet for more information.

If You Adopted in 2010

To claim the credit, you complete IRS Form 8839 with your IRS Form 1040. On line 5 of 8839, which asks for qualified adoption expenses, enter $13,170 as long as your child receives adoption assistance. Others should enter their qualified adoption expenses. Read our fact sheet for more information.

If You Adopted before 2010
Read our fact sheet for more information.

If you Adopted between 2005 and 2009 and Claimed the Credit the Year You Finalized

If you finalized in 2005 or later, claimed the credit that year, and carried forward the adoption tax credit on each year’s returns, just carry forward the remaining amount of the credit from your 2009 return to 2010. You can claim the full amount remaining as a credit on your 2010 return.

If you claimed the credit the year you finalized, but didn’t carry it forward to subsequent years’ tax forms, you’ll need to amend returns for those years.

If You Adopted in 2008 or 2009 and Didn’t Claim the Credit

You must file for the adoption tax credit in the year you finalized the adoption, so you need to amend your tax return for the year the adoption was finalized and any subsequent years, carrying forward the amount of the adoption tax credit that you are not able to use each year. Any part of the credit not paid before 2010 can be used fully with the 2010 return.

If You Adopted from 2005 to 2007 and Didn’t Claim the Credit

Adoptions finalized from 2005 to 2007 are more complicated because the IRS allows people to amend returns to claim a credit only for the past three tax years. These are now considered closed tax years. The IRS has written, though, that these older credits can be accessed.

If you adopted in 2005, 2006, or 2007, you should amend your returns starting the year you finalized. Because it’s longer than three years ago, you cannot be paid a refund for any of the credit that you would have been due in 2005, 2006, or 2007. You must still complete the 2005, 2006, and/or 2007 return as if you are getting a refund for the credit used, but any credit that could have been refunded in these years will be lost. When you amend your 2008 taxes and forward, you can use any credit due that year. Whatever amount remains after you do your 2009 taxes can be carried over and refunded in 2010. Please note that the IRS may reject your amendment but we encourage you to appeal. A taxpayer advocate may be helpful in the appeal.

If you didn’t file in 2005, 2006, or 2007 and had sufficient tax liability in those years to use up the whole credit, you will not benefit. You need to have some credit carried forward to 2008 to get a payment.

If You Adopted in 2003 and 2004 and Didn’t Claim the Credit

If you finalized an adoption in 2003 or 2004, the issue about amending returns more than three years old applies so you are less likely to benefit. You cannot carry the credit forward to 2010 when the credit becomes refundable.

A family with significant tax liability may use up all of the adoption tax credit in the years before 2008, but they cannot get a refund for these years. Those families who have a moderate tax liability might be able to carry forward some of the credit to 2008 or 2009, when they could get a refund for whatever tax liability they had that year.

Below are links to a number of resources for adoptive families.

NACAC's resources focus on adoptions of children with special needs from foster care, but may also be of use to other adoptive families.

North American Council on Adoptable Children (NACAC)
970 Raymond Avenue, Suite 106
St. Paul, MN 55114
phone: 651-644-3036
fax: 651-644-9848

Ten Things Every Adopting Foster Parent Should Know

10 Things Every Foster-to-Adopt Parent in Virginia Should Know

  1. The Home Study
    Every family adopting from foster care must be evaluated for fitness in caring for the particular child they wish to adopt. The home study should also be considered your tool for getting answers to many questions about adoption. The home study will include a background and reference check for every adult family member living in the home.
  2. The Adoption Placement Agreement
    When a foster child is placed in your home with the intention of adoption an Adoption Placement Agreement should be considered. Under a normal foster care agreement a child can be removed from a home at any time without reason. The Adoption Placement Agreement states that the child can only be removed for specific reasons. Find a sample agreement at: Please be aware that if you do sign an adoption placement agreement, you can not later decided to petition the court for adoption without the approval of the department of social services.
  3. The Adoption Assistance Agreement
    This document will be negotiated before finalization of the adoption. You may also include services needed such as daycare costs and in-home counseling. Find a sample document at: Items 4, 5, 6, and 7 of this document are standard items for consideration in the Adoption Assistance Agreement.
  4. Adoption Subsidy
    Federal and state resources are available to help support the needs of children you adopt from the foster care system. Every child adopted from foster care is eligible for an adoption subsidy equal to the basic foster care maintenance rate, if they have special needs. In Virginia, special needs are defined as 6-18 years of age with special circumstances or with a significant tie to the foster parents who cannot afford adoption without a subsidy. Learn more at the FACES website: and click on adoption. Please be sure to note that local departments do not pay the costs associated with subsidy. The costs are paid by a combination of federal and state dollars, or if the child is not eligible for federal funding, then it is paid entirely by the state.
  5. Special Payments for Children with Intensive Supervision Needs
    As of October 1, 2009, any child adopted with special needs is eligible for an assessment using the Virginia Enhanced Maintenance Assessment Tool (VEMAT). This tool determines additional supervision needed by the child relative to behavior, emotional, or medical needs. To learn more about the VEMAT visit: and click on adoption. The payments from the VEMAT can range from $1900-$3200 based on the significance of child needs for supervision. This is a combination of federal and/or state funding for the children and no local dollars.
  6. Adoption Non-recurring Costs Assistance
    When a family adopts from foster care certain non-recurring costs up to $2000 can be reimbursed to the family. Non-recurring costs may include attorney fees to finalize the adoption, transportation costs, special examinations, or other related costs. There are no local funds used for this expense.
  7. Medicaid Coverage
    Children adopted from foster care with special needs are eligible for Medicaid coverage. Be sure to ask for this assistance when negotiating the child's adoption subsidy. In addition, you may request reimbursement for mileage to all Medicaid eligible appointments through Logisticare (
  8. Post-Adoption Services
    Virginia contracts with UMFS to manage the Adoptive Family Preservation Program. This program provides essential services to families who find they are struggling to preserve the adoption. The program can also provided needed respite for families, as well. There are times when children will become more challenging after the adoption has been finalized, be sure to ask for help when and if this happens to your family. Learn more about Adoptive Family Preservation services in Virginia by visiting and clicking on the adoption tab.
  9. Open Communications Contract
    Virginia now has an option of Open Adoption. If a birth parent wants to be able to stay in communication with their child, and you are agreeable to this, then the court can approve an Open Communications Contract. Please know that if after the signing of the contract, you no longer believe this contact is beneficial to the child you can stop participating and it will not impact the status of the adoption. The adoption cannot be severed just because you are not abiding by the Open Communications Contract. The option is available in Virginia in order to help birth parents become more comfortable with termination of their parental rights and to help older children, especially, be more comfortable with adoption.
  10. Legal Custody versus Adoption
    There may be a time when your child-placing agency worker asks you about or informs you of the option for taking legal custody of the child in your foster home. This is sometimes done to be sure that you can retain the child in your home, since foster parents have no rights to specific placements. Be informed!

If a child in your foster home is not eligible at the time of adoption for federal Supplemental Security Income (SSI), then they may not be able to receive any adoption assistance payments or services once you take legal custody. While the child may not have any special needs at the time you are considering legal custody, please be aware that many times these special needs may not become evident for years. In addition, for a child to become SSI eligible after adoption is much more difficult for families. We know that adopting a child is NOT about the money, but the child may need some very special assistance that you cannot afford, so please weigh this option very carefully.

Another caution about legal custody if the parental rights have NOT been terminated, then you are the only person who will be working with the courts and the birth family. You will not have a local social services staff person able to intervene on your behalf, any more.

Saturday, November 5, 2011

National Adoption Day Celebration

On Monday, November 7, the office will set up refreshments for the annual Department of Human Services Adoption Day celebration to be held at the Norfolk Juvenile & Domestic Relations District Court. This honors all children who were adopted from foster care in 2011.
Judge Williams will preside over the ceremony in the main courtroom, followed by the refreshments we will provide (including cupcakes with frosting hearts) and gifts for the children provided by the Norfolk Sheriff's Department.
Our office has been involved in many of these adoptions and takes great pleasure each year in coming to the celebration.
Foster care is a great place for those who are looking to adopt a child!

Thursday, November 3, 2011


November is Mediation Month. It is the perfect time to schedule a mediation session with our office. You can use this opportunity to work out holiday visitation schedules or to tie up loose ends in 2011.
Check out our Mediation Website at or call 757.533.5400 to schedule a convenient time to come in.

I Want To Contest A Divorce

I want to contest a divorce

I want to contest the divorce because I don't want a divorce.

Only one party has to intend to separate. Once the separation period ( 12 months or 6 months with a written Agreement and no children under 18) has expired, a divorce will be granted.
Legal disclaimer: This response does not create an attorney-client relationship and is intended for general information purposes only.