TLD's General Counsel Blog

TAX RETURN PLANNING DURING THE SEPARATION PERIOD

As the end of the year steadily approaches and you begin organizing and/or gathering documents to assist in your upcoming tax preparation for the 2006 fiscal year, you may want to consider whether you and your spouse are going to file married jointly or married filing separately.

Disadvantages of Separate Returns:  Married couples who file jointly are taxed as if each spouse had exactly the same taxable income.  Accordingly, substantial tax savings are realized by filing jointly.

Different tax rates on separate returns; earnings taxed separately: If you are separated from your spouse but still legally married by the end of 2006, you must file separately unless you and your spouse agree to file a joint return or a court has entered a judgment of legal separation.  A later obtained judgment or marital dissolution does not relate back to an earlier year in which you and your spouse were married.

You and your spouse will each be taxed on your respective earnings separately.  But you will each have to allocate income, treating income earned before the date of separation as community property (taxable half to each) and income earned after the separation date as the earning spouse's separate property.  If all income is community income so that the income and deductions are divided equally among you and your spouse, the total tax on separate and joint returns will be the same.

Restrictions on itemized deductions and child care credit: If you and your spouse file separate returns, you both must agree to itemize deductions.  If not, then neither can.  IRC Section 63(e)(1).  No child credit may be claimed on a spouse's separate return unless the other spouse was absent from the household during the last six months of the year.  IRC Section 21(e)(4)

Allocation of tax liability: Separated spouses who are willing to file jointly should reach a clear agreement as to how the tax liability will be apportioned between them.  A logical approach is to prorate the tax liability by using a ratio based on the parties' separate incomes.  In the alternative, spouses may chose to allocate liability based on what each would have paid if separate returns were filed.

Relief from tax liability: Generally, spouses who sign a joint return are each jointly and severally liable for the tax shown on that return, including any tax deficiencies, interest and penalties attributable to the other spouse.  The liability exposure should be kept in mind when deciding whether to file jointly or separately.

Potential joint liability relief: A spouse wrongfully exposed to joint liability for deficiencies, interest and penalties may have recourse under an indemnification agreement or under various code provisions.  For example: (1) 'Innocent Spouse' relief from liability for tax deficiencies attributable to erroneous items of the other spouse (IRC Section 6015(b)); (2) 'Separate liability' relief from liability for tax deficiencies (IRC Section 6015(c)); and Equitable relief from liability for tax deficiencies and underpayments (IRC Section 6015(f)).

Helpful assistance can also be found at the IRS Web site http:/www.irs.gov.

Keeping Pay Records Can Keep You Out of Trouble

Small to mid-size businesses are among the least likely to keep accurate payroll records. They are also least able to bear the cost of a wage and hour claim brought by a current or former employee. Proper attention to maintaining accurate records at the inception of the employment relationship can reduce or even prevent future, costly claims.

"Tis the Season to Be Jolly" --Surving the Holidays with a Pending Divorce

The Holiday Season is here.  Statistics reveal that this is the time of the year when depression and anxiety runs rampant, especially amongst those who are in the middle of divorce proceedings.  The Holidays can actually be an enjoyable and festive time, even in the midst of a divorce.  Here are several tips to survive the Holidays while your divorce is pending.

TIP NUMBER 1: Remember you are not alone.

Statistics reveal that 1 out of 52 first time marriages ends in divorce.  You may feel embarrassed that you are going through a divorce or you may feel like a failure.  These feelings often lead you to miss out on holiday events, parties and/or gatherings.  For the first time, you may be attending holiday gatherings without your spouse, which may cause you anxiety.  You also may choose to not attend functions so that you don't have to answer the dreaded question, "Where is your spouse?"  However, now is the time to seek the comfort of your family and friends.  You will be surprised to learn how many people have experienced a divorce or knows of someone who has.  This may be the year you have to buy yourself a gift and celebrate "you."  At least you know you will receive something you like.

TIP NUMBER 2: Revisit your custodial plan.

If you have minor children and there is a custodial schedule/judgment in place, pull it out and re-read it.  A good custody schedule will specifically delineate the custody plan for the winter break session.  It will set forth the date, time, and location for the custodial exchange.  Usually both parents will equally share time with the children during the Winter break period.  Make sure you are familiar with the custody schedule so that you can plan your holidays accordingly.  If you do not have a well defined custodial schedule in place, you may want to discuss with an attorney or your spouse a custody arrangement which equally shares the Winter break session with both parents.

TIP NUMBER 3: Budget Accordingly.

Now is not the time to prove to your loved ones and friends that the divorce has not financially impacted you.  Quite the contrary.  It is strongly recommended that you do not run up credit card debt or spend money on lavish gifts for family and friends.  Most people close and dear to you understand the expense of a divorce.  If they do not, you can kindly explain that you are now living on the same income but there are now two separate households to maintain.  Now is the time to get creative with gift giving ideas and remember a nice sentimental card goes a long way.

"Rather than wondering about or questioning the direction your life has taken, accept the fact that there is a path before you now. Shake off the "why's" and "what if's," and rid yourself of confusion. Whatever was - is in the past. Whatever is - is what's important. The past is a brief reflection. The future is yet to be realized. Today is here!" - Vicki Silver

Enjoy the Holiday Season!!

Common Law, Common Problem?

Most employers are already aware of their exposure to lawsuits based on statutory causes of action for discrimination or harassment. Such lawsuit can be brought under the California Fair Employment and Housing Act (FEHA), Title VII of the Civil Rights Act, the Age Discrimination in Employment Act (ADEA), the Family and Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA). Such causes of action have been around for some time; consequently, human resource departments are well aware of these threats and have for the most part developed policies to address them.

However, beyond the usual suspects, employers should be wary of a new and lurking threat: common law causes of action.

Happy Holidays!

The holiday season is upon us, and the holiday season brings holiday parties. Office festivities are a great way to boost morale and thank employees for their hard work throughout the year. Yet, some employers worry about liabilities that may arise with employer-sponsored events, while others may not know of issues that can arise with these same events. 

Will California Legalize Gay Marriage?

Homosexual Couples want to enjoy the legal, financial, and social benefits that marriage affords Heterosexual Couples.

San Francisco and approximately a dozen homosexual couples have filed an appeal to the California Supreme Court after an appeals court ruled against same-sex marriage.  If the California Supreme Court takes the case, a decision on same-sex marriage will most likely come down in a year or more.  The justices have 90 days to announce whether they will review the case.

Gay marriage advocates hope to overturn the ruling that said limiting marriage to a man and a woman does not violate the constitutional rights of gays and lesbians.  Many advocates argue that the Domestic Partnership Act has failed to bridge the inequality gap between committed same-sex couples and married opposite-sex couples.  Most significantly, the economic and financial inequities that are borne by same-sex domestic partners are also borne by their children.  Even though same-sex couples are provided fewer benefits and rights by the Act, they are subject to more stringent requirements to enter into a domestic partnership than opposite-sex couples entering a marriage.  The same holds true with respect to dissolving a domestic partnership.

In October of 2006, the 1st District Court of Appeal ruled in a 2-1 vote, that its role was not to define marriage.  The Court noted that since 61% of California voters declared in 2000 that marriage as a union is between man and a woman under Proposition 22, the Court would not trump California voters.

The Appeals court ruled that California's existing laws do not discriminate because gays and lesbians get most of the rights of marriage the state confers to heterosexual married couples.  Gay advocates have expressed that being the recipients of MOST of the rights conferred to married couples, and not ALL of the rights, is where the discrimination comes in.

The California Supreme Court, made up of seven Justices, is not obligated to review the appellate court's decision, which overturned an earlier decision by a San Francisco trial judge.  If the Court does not take the case, the appellate court's rule stands.

San Francisco Mayor, Gavin Newsom put the marriage debate in the national spotlight by allowing same-sex couples to get married at City Hall in 2004.  California's justices stopped Mayor Newsom and ordered that the 4,037 marriage licenses were null and void.  The Court further ruled that the mayor did not have authority to make marriage law.

The big question then becomes, who has the authority to legalize gay marriage.  The Courts have ruled that the Mayor does not have authority to legalize gay marriage.  The Appellate Court recently ruled that it does not have the authority either.  Thus, it appears as if the California voters are entrusted with this authority.  However, the California Supreme Court may put an end to this debate.  Gay advocates are hopeful.  Since 2004, when Massachusetts became the first state to legalize gay marriage, advocates have seen California as one of their best hopes for expanding the marriage movement.

In less than 90 days, we will know who has the authority to legalize marriage, if anyone.  Read the Appellate Court's opinion decided October 25, 2006. Mark Lewis and Dennis Winslow, et. al. v. Gwendolyn L. Harris, etc., et. al.

The family law practice at Tredway, Lumsdaine & Doyle includes equal representation of married opposite-sex couples and committed same-sex couples, including partners wishing to dissolve their "marriage" under the Domestic Partnership Act.

Britney Spears files for Divorce

Britney Spears, a famous pop star, well noted for her hit singles, "Oops! I did it again" and "Baby Hit Me One More Time," files for divorce against her husband, Kevin Federline of two years.  They have two minor children of their marriage.  Britney cited "irreconcilable differences for dissolving her marriage."  Read the Petition for Divorce filed by Britney Spears on November 7, 2006.  Britney Spears v. Kevin Federline.

The First Steps - Filing for Divorce

Prior to filing for divorce, preparation is key.  There are legal and practical issues that must be resolved before the petition is filed.  Retain a lawyer if the divorce is contested, you have children and/or any significant assets.  Once the petition is filed, it becomes public record.  The party who files the petition is the petitioner and the opposing party becomes the respondent. 

You should gather and copy records.  If you are unsure of what to copy, err on the side of precaution and copy everything.  Missing or destroyed documents are common after the petition has been served on the opposing spouse.

Get emotionally prepared.  Although the emotional distress of divorce has been compared to the death of a loved one, filing for divorce, in most circumstances, allows you time to get emotionally prepared.  Remember people talk and friends become confused.  Family and friend's responses and comments become unpredictable.  You should not take it personally.  Financially, maintaining two separate households on the same level of income becomes a challenge.  You should get your financial records in order and prepare a budget to live on.  Talking to your children about divorce becomes another challenge, especially if they are young and wonder why "mommy" and "daddy" are living in separate houses.  Decide how to explain your decision to your spouse and children.

If you need assistance, do not hesitate to contact a divorce lawyer for recommendations.  Filing for divorce is a difficult step in the best circumstances.  Living through a divorce is life changing and does not have to be the kind of "nightmare" we all have read and heard about.  "Life happens to the best of us, it is not what happens to us but how we react to what happens to us."  With adequate preparation and competent counsel by your side, the process of divorce becomes less of a challenge.

Employee or Independent Contractor: Why does it matter?

All businesses operated by persons other than their owners face potential liability for misclassification of those third-party workers as “independent contractors” when they are really employees.  Oftentimes, business owners are not even aware of a problem until they are served with a lawsuit or wage claim by a disgruntled worker.  Depending on the size of the business, misclassification can result in devastating damages awards including overtime and minimum wages, penalties, interest and attorneys’ fees.  Further, the putative employer may be penalized for failing to do payroll withholding and purchase workers’ compensation insurance.