Sunday 9th March, 2008

 

Homeowner savings after divorce

 
 
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Divorce can effectively cut a lifetime of asset creation into two. The pieces are seldom equal. The battle for who gets the bigger half is seldom amicable.

For 2006, the UK saw 12.2 divorced people for every 1,000 people. As a percentage of all marriages that was about 40 per cent, and in the US the statistic stands at about 45 per cent of all marriages.

People hardly do financial planning for a divorce; it is always after the fact. Of course this does not include a scheming spouse, who begins to scuttle away money from the systems in the marriage or home.

But nevertheless, the tax laws are lenient to the one who pays the alimony or maintenance.

Alimony is not an absolute right in the dissolution of a marriage, but it may be established in a settlement, by the courts, that seek to provide financial support to a former partner.

Maintenance is the monetary payment to an existing spouse where the marriage has not been dissolved.

Where there is no marriage, such as in a legal common-law relationship, then an affidavit is sufficient testimony to the relationship, and the right to claim.

Both orders and deeds of separation must be court documents, and these constitute proof for filing the claims. All the monies paid as a result of these orders can be claimed as a tax deduction.

It is subtracted from the gross income, before you begin to compute your taxable income.

The question about the first-time homeowner’s claim then becomes something of a tickle, or a nightmare, depending on which side of the bigger half equation you stand.

Under normal circumstances a couple or an individual may claim an allowance of $10,000, upon the acquisition of a new home, whether constructed or previously built by the vendor. The home must have been acquired after January 1, 2003. This can only be claimed in one year!

In the event of a divorce, if you didn’t get the house, you will have to find a new place to live. If you can buy a new house, will Inland Revenue recognise you as a first-time owner?

The series of tests can be a nightmare in terms of the documentation trail. Who really paid for the first home? Who really benefited from the tax claim? What about if the marital home was purchased before 2003, when no claim was available? Can you purchase a new home in 2005 and still have the $10,000?

My experience is that the BIR is reasonable, but the trail of documents necessary will make a reasonable woman, unreasonable.

The essential thing is forward thinking. If you are entering the process, keep your documents carefully, and remember to request specific documents that will fully represent a paper trail.

To begin to rebuild an estate, savings, pensions and assets after a divorce is not an easy task. Monetary compensation can neither replace the pain and the hurt, nor buy you the time you will need to rebuild.

On the bright side, the divorce rates in first world countries have all been toppling. Maybe people are not getting married as much or maybe people are holding on to their families longer.

The age of the nuclear family is dimming, and the extended family construct is reborn.

(Continued next week)