There are some significant tax issues that can arise at mediation which our Florida Supreme Court Certified Mediators at Mediation of Coral Springs, Inc. routinely come across. These issues routinely include, but are not limited to, alimony, pensions, IRAs and 401ks.

The United States Congress enacted, and President Trump signed into effect “The Tax Cuts and Jobs Act” which went into effect on January 1, 2018. This Act has a significant impact on how alimony payments are treated under the United States Tax Code because after December 31, 2018, spouses who are court ordered to pay alimony (or spousal support) will no longer be able to take a tax deduction while the spouse who receives alimony will no longer have to report it as income. This only applies in cases where a Marital Settlement Agreement is signed, or a Final Judgment of Dissolution of Marriage will be entered after the above referenced date. The Internal Revenue Service had previously allowed this alimony deduction on federal tax returns since 1942.

Our Florida Supreme Court Certified Mediators have seen prospective paying spouses trying to negotiate a lower monthly support amount since there will be no longer be any tax savings to the payer.

In Florida, a spouse is entitled to a portion of the other spouse’s retirement benefits that accrued during the marriage. Florida Statute § 61.076 (1) governs the distribution of retirement plans upon the dissolution of marriage. This statute provides that “All vested and nonvested benefits, rights, and funds accrued during the marriage in retirement, pension, profit-sharing, annuity, deferred compensation, and insurance plans and programs are marital assets subject to equitable distribution.”

At Mediation of Coral Springs, Inc., our Florida Supreme Court Certified Mediators recognize that a Mediated Settlement Agreement incorporated into a Final Judgment of Dissolution of Marriage cannot legally divide current retirement benefits or even designate future benefits that are tied up in a retirement plan; because retirement benefits may have significant federal income tax consequences if these benefits are received in a manner that violates the United States Tax Code. Therefore, in order for retirement benefits to be properly divided between you and your spouse, a legal document that is called a Qualified Domestic Relations Order (QDRO) needs to be drawn up, agreed upon between you and your spouse, approved by retirement plan administrators, and then approved by the Family Law Court. Mediation of Coral Springs, Inc. makes certain that the requirement of a QDRO being drafted by one of the spouses is inserted into Mediated Settlement Agreements.

In many cases one of the spouses has stayed at home to care for the children during the marriage and now this this spouse needs liquid assets that provides cash to live on as he or she moves forward in life as a single person. Often, the other spouse has a 401k or IRAs or stock options that are solely in his or her name. While these assets can be transferred during a divorce, it is important for stay at home spouse to understand that there may be tax consequences of cashing out a 401k or IRA as well as knowing the future value of stock options in order to make an informed decision about whether or not to accept an offer at mediation.
It is important that parties consider the tax consequences of offers that he or her receives at mediation.

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