Cohabitants Beware

Cohabitants Beware

Married couples are not the only ones beholden to a contract. Since 1976, people living together in California may be subject to paying the other support and to dividing pooled assets after a cohabitation relationship goes sour.

Before 1976, the only people on the hook for paying alimony and dividing pooled assets were married couples going through a divorce. After the Marvin case, things changed.

Lee Marvin was a famous actor in Hollywood circa the 1960s and 1970s. After his divorce from Betty, Lee began dating and living with Michelle. Even though Lee and Michelle never married, they entered into a verbal agreement that they would live together, combine their efforts, and earnings and that they would share equally in all property that accumulated during their relationship, whether obtained individually or through a concerted effort. They held themselves out to their community and friends as a married couple, and Michelle gave up her career as an entertainer and singer to be a homemaker, housekeeper, cook, and companion. In return, Lee agreed to provide for all of her financial support and needs for the rest of her life. When their relationship went south, Michelle expected Lee to hold up his end of the bargain. When he didn’t, she sued him.

As California is not a common law state, and financial rights like alimony and community property division were traditionally reserved for married couples only, Lee’s attorneys were not concerned. Indeed, Lee won at the trial court level. But, Michelle appealed. Eventually, the California Supreme Court determined that the verbal contract between Lee and Michelle was valid, and Michelle won.

What this means to legions of people cohabitating in California, regardless of whether they have a romantic or sexual relationship, is cohabitators beware. Before you hand your apartment keys over to your friend or lover, it is good practice to make sure you understand what you could be facing down the road. We suggest you consult with an attorney if any of these situations apply to you and a significant other:

  • You are thinking about moving in together;
  • You start pooling your assets;
  • You start sharing the mortgage, rent, utilities, groceries;
  • You start having children together…

Don’t get caught up in a financial twist by accident.

Lisa Mendes Superlawyers Badge
Best of the East Bay Attorneys
Lisa Janine MendesReviewsout of 5 reviews
Walnut Creek Chanber of Commerce logo
Christina Weed - Taxation Law Specialist
lawyers of distinction badge 2020

Spousal Support Considerations After the Tax Cuts and Jobs Act – Does California Conform?

Spousal Support Considerations After the Tax Cuts and Jobs Act – Does California Conform?

As you likely already know, after the Tax Cuts and Jobs Act (TCJA), alimony will not be deductible for the payor spouse, or reportable as income to the payee spouse, for divorce decrees entered after 2018.

But what about California, do these new rules still apply?

California does not conform to the new laws, and it will still allow a deduction for spousal support payments and require a payee spouse to report the spousal support as income.

Because California will still allow payor spouses to deduct spousal support payments, divorce decrees must still meet certain requirements.

For example, the payment must be made in cash or cash equivalent; the payment must be made incident to divorce; the parties must not have designated that the payment was not spousal support; the payment must not be treated as child support; as well as other requirements.

Most divorce lawyers are not qualified to advise you on the tax matters surrounding divorce.

If you have questions about the foregoing, or any tax matters relative to your divorce, please reach out to a lawyer at our firm who is qualified to speak to you about both family law and tax law related matters.

Mendes Weed, LLP is here to help you if you have any questions.  (925) 390-3222.

 

The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

Lisa Mendes Superlawyers Badge
Best of the East Bay Attorneys
Lisa Janine MendesReviewsout of 5 reviews
Walnut Creek Chanber of Commerce logo
Christina Weed - Taxation Law Specialist
lawyers of distinction badge 2020

The End of the Spousal Support Silver Lining: The New Tax Laws and What They Mean for Your Spousal Support

The End of the Spousal Support Silver Lining: The New Tax Laws and What They Mean for Your Spousal Support

If you are planning to get a divorce, and you are worried about your spousal support you may want to consider racing to the courthouse.  It is likely that among friendly discussions at the neighbors’ backyard BBQ, you have swapped stories about someone who is paying spousal support and deducting it at the end of the year; however, Trump’s new tax plan will drastically transform the divorce process and the concept of spousal support.

California divorce cases are primarily governed by the California Family Code; however, there are some occasions where federal law applies. Under current federal law, your divorce counsel can construct a Stipulated Judgment or Marital Settlement Agreement which can benefit both parties.  The agreement can be drafted to allow the payee spouse to receive higher support payments, while affording a lower post-tax cost to the payor spouse.  It is somewhat of a win-win.

Spousal support is a heavily weighted, and abundantly negotiated issue in divorce cases, and the taxability issue is a major factor in such negotiations. The new plan arguably creates a lose-lose.  Under the new tax plan, Spousal Support Orders entered into after December 31, 2018 will no longer be tax deductible for the payor.  The payor spouse no longer receives a tax deduction, and the payee receives less money.  Feel free to make your “impact to the economy” arguments here.

If you are contemplating a dissolution, regardless of which side of the spousal support issue you fall on, you may want to hustle, as a delay could seriously impact your bottom line.  It is also important to note that the court system is not as quick as those you may have seen on shows like The Good Wife or Law and Order.  It can often take months to get a court hearing, depending on how impacted your county is.

Plan accordingly, and contact Mendes Weed, LLP for the help you need.

 

The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

Lisa Mendes Superlawyers Badge
Best of the East Bay Attorneys
Lisa Janine MendesReviewsout of 5 reviews
Walnut Creek Chanber of Commerce logo
Christina Weed - Taxation Law Specialist
lawyers of distinction badge 2020

Tax Changes for 2018

 

As you may be aware, there will be some drastic tax changes that will go into effect in 2018.  Many clients want to know how this will affect them. Please consider the following changes:

  • There will still be 7 income tax brackets for individuals, but the rates are all slightly lower for the most part.  The standard deduction will double, and the personal exemption will be eliminated.
  • Many itemized deductions will be eliminated.
    • Alimony will no longer be deductible to the person paying it but will be deductible for the person receiving it for divorces signed in 2018.
    • Deductions for charitable donations, student loan interest, and retirement contributions will remain.
    • Mortgage interest deductions will be limited to the first $750,000 amount of the loan, but this does not include current mortgage holders.
  • The Obamacare tax will be repealed for those without insurance effective in 2019.
  • The estate tax exemption will be doubled.
  • The child tax credit will be increased from $1,000 to $2,000.
  • The corporate tax rate will be lowered from 35% to 21%.  The standard deduction is increased to 20% for pass-through businesses.  This is phased out for professional service businesses at certain individual income levels.  Small businesses may want to delay income to the extent permissible by law until 2018 to take advantage of this.

Contact Mendes Weed, LLP

This is only a summary of a select few of the changes that will go into effect in 2018.  For more information about other changes to the tax laws, you should reach out to and meet with a tax lawyer.

Mendes Weed, LLP has offices in Walnut Creek, Sacramento, and San Francisco.  If you would like to know how the tax changes will affect you, contact us.

 

Lisa Mendes Superlawyers Badge
Best of the East Bay Attorneys
Lisa Janine MendesReviewsout of 5 reviews
Walnut Creek Chanber of Commerce logo
Christina Weed - Taxation Law Specialist
lawyers of distinction badge 2020