I am 62 years old and I receive a statement from my X-Spouse retirement account. I want to withdraw a small portion of money. Will I only be eligible if you receive non-qualifying stock options as compensation for marital residency equity? I received a lot of options, half of them were exercised, I have to sell the other half. Does it count as income? Because really; it`s just a matter of balancing marital property – something I already owned. In general, money transferred under a divorce agreement between (ex-) spouses – for example to settle assets.B – is not taxable to the beneficiary and is not deductible by the payer. This support is different from spousal support, which is taxable (and deductible) unless the regulation states that it is not. In some cases, a settlement may include a transfer of assets and a lump sum for support payments instead of periodic payments – in which case, support is usually taxable. First of all, who owns the house? If you signed a transfer deed when you divorced and it is only in the name of your ex, you will have no tax consequences of the sale. If your ex pays you $65,000, then it`s not taxable for you, no matter how your ex got it. Question: My husband and I will soon be divorcing. We have a good relationship with each other and the divorce was consensual. One of my main concerns right now is that none of us will come out of our pockets after the divorce because of taxes.
What steps can I take to ensure that none of us lose on taxes? Emma, Co Louth Answer: It is important that the divorce is formally documented – for example, by a divorce decree – and that this document is shown to the tax commissioners. This is especially important if child support is paid for the children or to one of the spouses. When support is paid, the spouse paying it is entitled to a tax deduction as a result of these payments – but only if they are legally enforceable. In such cases, the spouse paying the alimony may have their standard rate group (the amount at which they pay tax at 20%) adjusted to reflect the amount they have paid. Support payments made to a child or children are ignored for tax purposes – in other words, the person making the payment does not receive a tax reduction and the person receiving the payment on behalf of the children does not pay taxes on the payment. However, the part of the maintenance paid to one of the spouses is taxable. If, for example, a spouse pays €5,000 in maintenance, of which €3,000 is for children and €2,000 for a spouse, the €3,000 received for children will not be taken into account for tax purposes. But the €2,000 the spouse receives is taxable. The spouse who makes the payment will only benefit from a tax deduction for the €2,000. Voluntary maintenance (payments that are not legally enforceable) are not taken into account in the calculation of the spouse`s tax. In the case of voluntary support, the spouse who makes the payments is not entitled to a tax deduction for them, and the spouse who receives the support is not taxed on them.
Therefore, when it comes to alimony, it`s important to have a formal divorce agreement – otherwise, the spouse making the payments could be out of pocket as they are not entitled to a tax deduction. If the responsibility for caring for the children after the divorce rests with one of the parents, that parent should inform the income commissioners of their change in circumstances – and that he or she is now a lone parent. In this way, he can increase his standard rate threshold (the time when income is taxed at the highest tax rate) from €35,300 to €39,300 and is also entitled to the one-person childcare loan, which currently stands at €1,650. It should be noted that even if you are divorced, you still have the option to continue to be assessed for tax together. However, you may no longer want to be taxed together after your divorce. Either way, you may find that your after-tax payment isn`t that different if you`re no longer assessed jointly for tax after your divorce. For example, if you have a situation where both husband and wife have already received a marriage tax credit, if the husband pays child support and receives a tax deduction for maintenance, his after-tax salary may be the same as before the separation. However, the wife who receives maintenance (in her favour) is taxed on this alimony. Pay close attention to how you transfer assets to each other when you divorce. There are a number of tax breaks for married couples that exempt them from capital gains tax (CGT), capital transfer tax (CAT) and stamp duty on asset transfer. Divorced spouses are no longer legal spouses, so they are no longer entitled to tax breaks for married or separated couples.
However, the transfer of property between spouses on the basis of a court decision in a divorce decree is exempt from the CGT, the CAT and stamp duty. It is therefore important that you make sure that you benefit from these tax exemptions when transferring assets between you. Note that any settlement of property made without a court order after a divorce is generally not exempt from tax. Pension and divorce Question: My husband and I are in the process of divorcing. We have been married for over 30 years. My husband has a valuable pension because he has worked in the same job all his life. However, I am only entitled to the state pension because I have spent most of my working life caring for children and have been financially largely dependent on my husband. We receive a Pension Adjustment Order (PAO) so that I can get a portion of my husband`s pension. What happens to the pension after the OEP? Can I set up my own retirement provision with my share of benefits? Sarah, Dublin City Answer: After the DTP and the distribution of the pension by the trustees, you can either leave the pension where it is – in your spouse`s system – or transfer the benefit in your own name. If you choose to leave the benefit where it is, you will only be entitled to the corresponding pension payments at the time your spouse applies for his or her pension – but you can receive them if the benefits are linked to salary. This way, you do not have the possibility to apply for the pension regardless of your spouse.
Depending on the type of retirement provision, different pension options can be used. You also have the option to justify your own retirement benefit. This allows you to manage your retirement provision separately from your spouse. In addition, this option allows you to access benefits on your own terms, provided that you meet the conditions of the retirement system upon retirement. When you can access your retirement pension depends on your age and the type of pension. You can choose for yourself how you want to access your pension benefits – you don`t have to access your pension benefits on the same terms as your spouse. For example, if your spouse chooses the Lump Sum and Pension option, select the Capital and Approved Pension Plan (FIU) option relative to your share of the pension fund. An ARF is a personal pension fund where you can keep your money as an investment after retirement. With an annuity, a life insurance company guarantees to pay you an annual income for the rest of your life. Think carefully about both options before making a decision.
Also, be aware of the effects of your husband`s death if he dies before the retirement benefit is transferred to your name or before the benefits are claimed. Finally, if your husband`s pension is close to the upper limit of 2 million. € (an upper limit on the total net present value of pension benefits that a person can receive from tax-exempt pension plans) or that is actually likely to be reached, you should seek special advice. For more information about divorce and taxes or pensions or personal tax matters, please contact a member of our tax team. Our team of personal financial advisors answers questions from Readers of the Sunday Independent about the tax and retirement implications of divorce and separation. My ex used his pension funds to create an account in my name – I had to close that account to get the money – all these funds had to pay the final divorce agreement – and then I had to pay taxes on those funds??? A withdrawal from a pension fund, even if it is a divorce decree, is regarded as a `lump sum payment of pension funds` within the meaning of Paragraph 2(1)(b)(iA) of the Second Schedule to the Income Tax Act 58 of 1962. The amount that the non-responsible spouse receives is included in his or her gross income, and it is therefore the beneficiary spouse who is taxed on the withdrawal (not the member spouse). However, that tax is not calculated on the basis of the `normal` degressive rates as they apply to natural persons. Lump sums received from pension funds are taxed in the form of separately published tax tables, depending on whether the principal amount received is a “pension fund lump sum” (usually when a member has died or retired) or a “lump sum pension fund withdrawal benefit” (usually if pension fund benefits are used before retirement). The latter is taxed compared to the much heavier of the two tax tables. It is therefore important that in paragraph 2 of the second above-mentioned list, amounts paid under divorce agreements be expressly qualified as “withdrawal benefits”, so that those amounts are subject to a higher tax rate than would have been the case if the member had, during .B. .