Divorce has significant effects on your taxes.  For example, if your divorce is final by December 31 of a tax year, the IRS will consider you unmarried for that entire year, so you must file individual rather than joint tax returns.  Moreover, due to new tax legislation, alimony is no longer deductible for the person paying and it not taxable to the recipient.  It’s possible to go back and change a prior decree to make alimony no longer tax deductible, but changing a divorce decree is easier if you used the collaborative process to handle your divorce in the first place.  There are several tax issues to consider when getting a divorce, including how to handle the sale of your home, sharing retirement accounts, deciding who will claim children as dependents, selecting the proper filing status for the year of your divorce, and handling alimony.

Selling the Family Home

Getting a divorce often requires selling the family home because neither spouse can afford to keep it.  You may have to pay capital gains tax on any profit unless you used the house as your main residence for two of the prior five years and have not excluded capital gains from the sale of another home within the prior two years.  If you meet these criteria, each spouse can exclude $250,000 in capital gains on their home from any tax.  Getting an agreement about how to handle the sale of a family home is much easier if you used the collaborative divorce process rather than adversarial litigation.   

It’s possible to divorce in a way that supports the well-being of everyone. You can end the conflict, heal the hurt and part as friends. You just need to learn how.

Unfortunately, most divorces are handled in a very different way. Sides are drawn and issues become something to fight over rather than something to resolve. Walls of protection get fortified and distance grows. Then we bring in adversarial attorneys and escalate the conflict dramatically. We hurt each other over and over, feeling fully justified for everything we do. Serious damage is created in the process of divorce, and none of it is necessary.

Confronting the loss of the family system can be very difficult for children coping with divorce. Caring adults in these children’s lives may feel overwhelmed and helpless when faced with divorce and may feel unskilled in assisting children navigate this confusing time. These adults may want to help, but have no idea what to do.

Being Supportive 

One of the things we emphasize most in explaining Collaborative Law is that it’s different from the traditional divorce process, which utilizes litigation. Here are some of what we call “process descriptors,” which help establish the difference between litigation and Collaboration.

In litigation:

This is the official new blog for the Collaborative Law Institute of Texas.

As part of our ongoing efforts to educate people about the Collaborative Law process – including the recent debut of the new Collaborative Law Institute of Texas website — we’re launching this blog. It will feature articles from Collaborative Law Institute of Texas professionals, answers to some common (and not-so-common) questions about the Collaborative Law process, and news from across the state, nation, and even world as it relates to Collaborative Law.

To infinity, and beyond…

Well not quite. But when you are going through a divorce, it can feel as if the process will never end, especially if you’ve chosen litigation. During a litigated divorce, it’s not uncommon for spouses to have so much trouble communicating about divorce, money, and children, they end up speaking only through their attorneys. Sound familiar? I’m sure your friends have told you the horror stories. It soon becomes easy for information, as well as intentions, to be misinterpreted. Delays become commonplace, and the more time you ask of your attorney the more expensive the divorce becomes for both you and your spouse. And to make matters worse, speaking through attorneys is not a great set-up for post-divorce communication. 

When you are facing a life changing decision like divorce, what do you think you will find more valuable:  Someone to make you feel better by saying that nothing has to change, or someone who will give it to you straight, no chaser?  I feel strongly that not enough people in the world of divorce professionals will truly tell it like it is. They tell you want you to hear which can lead you to make some HUGE mistakes.  Easily avoidable mistakes…Mistakes that need not happen!

I tell it like it is. Your household income as a couple will now be supporting two households, so yes, things will change.  Let me guide you through that change with some simple points.  Basically, let me help you not make HUGE mistakes!

Divorce is stressful and creates a variety of emotions. It takes time for everyone to adjust to their new normal and for children to acclimate living in two homes instead of one. I often tell parents, adults choose to divorce, children do not, it’s not their decision to make, yet the divorce still happens to them. Children live the schedule and must adjust to two homes, multitasking their belongings, schoolwork and learning a new way of life without seeing both parents every day.

Children and teens adjust to their new realty with resiliency and grace when they have an age-appropriate amount of information, feel heard and validated and have an opportunity to have their questions answered before and during the divorce process. When parents can avoid these 5 mistakes, children and teens will have less stress, worry, and adjust more quickly.

For most people, the divorce process is emotionally draining and mentally exhausting. Many people describe it as a time of being frozen, numb, or moving in slow motions. Despite that emotional and mental trauma, you will be expected to go through your finances with a fine-tooth comb to ensure that your settlement agreement is fair and equitable. With divorce brain, that’s easier said than done!

Even if you feel like you are clear headed, here are a few of the most common money mistakes to look out for when getting divorced. 

1. Underestimating post-divorce expenses.  You will be asked to do a financial affidavit that reflects your expenses AFTER the divorce. It is critical that you are realistic and don’t leave anything out. This information will be used to determine if spousal maintenance is necessary or not. You should be sure to include everything from your health care deductibles to anticipated home repair charges for the roof you need to replace next year. Keep in mind current expenses that may increase over the years such as daycare, property taxes, etc. If you underestimate your expenses by $200 per month, that’s $2400 per year. Where are you going to get that extra money? When you’re the primary breadwinner this mistake could lead you to agree to pay maintenance that you ultimately can’t afford. A Certified Divorce Financial Analyst™ will help you scrub your affidavit for errors and make sure that you don’t leave anything out.
2. Believing that your attorney will handle everything.  Your attorney is an expert in the law, not finances. Would you ask your doctor for advice about legal questions? No, so why would you expect your attorney to be an expert in finances?  The attorney’s job is to ask you to fill out your financial affidavit and take your word for it that it is correct. A good attorney will glance over it looking for any glaring errors, but they are not trained to know the details behind asset tracing, QDRO support etc. The most commonly miss-valued asset is a pension. And sometimes, the pension is the most valuable asset in a marriage. I often see attorneys accept a present value statement from a pension as the correct value to include as marital property. It’s not even close. A CDFA™ can value it properly and make sure that tax ramifications are considered as well.
3. Not taking Tax Deductions. Not everyone realizes that portions of your attorney or CDFA™ fees during divorce are tax deductible. Any fees for obtaining alimony and/or retirement funds during your divorce proceedings are tax deductible. This means your QDRO fees are deductible. Also, alimony/ spousal maintenance used to be taxable to the recipient and tax deductible to the payer. This is no longer the case as the payer can no longer deduct the pay. This should be considered when the settlement is drafted.
4. Letting attorneys do the talking for you. The more you and your spouse can work out by just communicating, the more money you’ll save. I’ve seen many couples that could not bear to be in the same room but consider the cost. If you have your attorney relay information to the other spouse’s attorney, you’re racking up bills upwards of $600 an hour because you refuse to talk. Even if you can’t communicate verbally, email back and forth as to what you can agree on. This will save you time and money with the attorneys and mediation.
5. Letting your emotions make your decisions. So many people going through divorce just want to “get it over with.” This is not the time to just throw your hands up and agree to a settlement just to be done with it. A 50/50 split of assets is almost NEVER a truly equitable settlement. So, put the emotions aside and think with a reasonable financial mind. Take your time and make sure you thoroughly understand what your future will look like after your divorce and be sure to hire the right experts to help you.

In March of this year at the State Bar of Texas Annual Collaborative Law Conference I delivered the closing speech.  This was the third time in a row I was asked to be the last speaker at the Conference.  In 2020 I talked about The Power of Hope.  In 2021 I spoke on Love in Time of COVID.  In 2022 I spoke on The Love of the Game.  I replayed videos of my interviews with divorced couples, divorce attorneys, and professionals in mental health and finance as to what they each loved about the collaborative divorce process.

When I was a baby lawyer back in the 1900s, I was trained to zealously fight to win victory for my clients in court.  I wanted to litigate, show my courtroom skills and to get justice for the husbands, fathers, wives, and mothers I represented.  There is an important role litigation lawyers, including me, have in resolving disputes between others.  I am proud of the many trial lawyers at Gray Reed and my countless friends in Houston and around the State of Texas who dedicatedly, professionally, and honorably serve their clients.

Divorce is one of the most traumatic events in a person’s life. And it is a decision made by many people in our society. Despite the ever-present nature of it in our communities, there are still misconceptions that should be dispelled. Here are just a few:

Misconception #1: We’ve decided to divorce. We can do it ourselves using Internet forms.

Divorce is one of the most complicated, important events in a person’s life. Think about it. When most people marry, they take six months to a year to plan a wedding that will last one day (and spend a lot of money in the process). Now fast forward ten, or twenty, or thirty years. You have probably bought a house. You likely have retirement accounts. You may have investment accounts. Maybe you even have a successful small business. And for many couples, you have children. Uncoupling all of this is not a simple process. Did you know that the most commonly used printed version of the Texas Family Code is over 1,000 pages – of very small type? And that doesn’t even take into account the various other legal codes that may apply to your divorce. (I’ll spare you the list.) Allow me to leave you with this thought: If you broke your arm, would you watch online videos to learn how to set and cast it yourself, or would you seek the help of a trained professional?

I recently lost a family member to cancer. Some people might not think of us as family, because he was my ex-husband. But because we divorced collaboratively, we were able to remain family from the very beginning of the divorce process up until I held his hand on his deathbed. As hard as it has been watching my children lose their dad, it has also been reassuring knowing that our sons felt loved, nurtured, and cared for, by both of us. That is because we made the decision to be the best co parents we could be. Many years after the divorce, I am convinced that the collaborative divorce process laid the groundwork for that reality. It helped us identify when it was appropriate to put our personal needs aside, during the divorce process and beyond, to do what was best for our children. What’s more, remaining good friends and family, was one of our goals throughout the divorce and became one of the best benefits of Collaborative Divorce for us.

How does collaborative divorce help preserve relationships?
In collaborative divorce, you will be working with a team. The collaborative divorce team is made up of your attorney, your spouse’s attorney, one neutral financial professional (NFP) and one neutral mental health professional (NMHP). This team approach helps enhance the quality of decisions made during the divorce process, which in turn provide the best environment for preserving relationships within the family. Unlike litigation, a collaborative divorce allows the couple to explore solutions in a safe, confidential environment where they are each supported by their collaborative attorney, as well as the two neutrals assigned to the case. 

Divorce already takes an emotional, mental, and financial toll on the family. The current real estate market has added to that with increasing interest rates, declining house prices and diminishing values in certain asset accounts

Nationwide, there’s a shortage of available houses – especially at lower price points – compared to the number of would-be homebuyers. For a while, there was tons of talk of offers being made above asking, inspections being waived, no contingencies, bidding wars, and so on, but, as the Fed has raised interest rates, demand has cooled a bit.