Which Parent Gets To Claim The Child On Their Taxes?

education tax deductions 300x200 Which Parent Gets To Claim The Child On Their Taxes?

Custodial Parent Gets the Tax Exemption for the Child

Even though your divorce or custody case is in Michigan, IRS regulations control which parent gets to take the children on their taxes as a dependency exemptions after a divorce.  The general rule is that the custodial parent takes the children as exemptions. The custodial parent is the parent with whom the child lives a majority of the year. The other parent is the non-custodial parent.

When Can the Non-Custodial Parent?

Absent an agreement between the parents, the non-custodial parent can claim a child as a tax exemption on their return only if:     

1. The parents:          

     a. Are divorced or legally separated under a decree of divorce or separate maintenance,          

     b. Are separated under a written separation agreement, or          

     c. Lived apart at all times during the last 6 months of the year, whether or not they are or were married.     

2. The child received over half of his or her support for the year from the parents.     

3. The child is in the custody of one or both parents for more than half of the year.     

4. Either of the following statements are true:          

      a. The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. (If the decree or agreement went into effect after 1984 and before 2009, see Post-1984 and pre-2009 divorce decree or separation agreement , later.          

      b. If the decree or agreement went into effect after 2008, see Post-2008 divorce decree or separation agreement , later.)A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child’s support during the year.

Equally Shared Parenting Time

If the parents equally share the parenting time during the year, the parent with the greater Adjusted Gross Income (AGI) gets the exemption.

Need to talk? Call 313-291-0240 to set up an appointment.

Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area.

Keeping Your Tax Refunds In A Chapter 7 Michigan Bankruptcy

Keeping your Tax Refunds in a Chapter 7 Michigan Bankruptcy.

If you want to keep your refund from being seized by the Chapter 7 bankruptcy Trustee, you must read this. My clients in the Downriver area count on their tax refunds to catch up on bills, buy clothes for the kids, or even pay their property taxes. Here are 5 things you must know to keep your money.

1. Federal tax refunds cannot be garnished from the IRS but federal refunds can be garnished from your bank account once deposited. If you want to keep your federal tax refunds from a judgment creditor that is garnishing you, then avoid direct deposit and get a check sent to you. 

2. State refunds in Michigan can be garnished by a judgment creditor from the Department of Treasury. A judgment creditor doesn’t have to wait for it to get into your bank account. Only thing you can do to stop this type of garnishment is to file for bankruptcy protection. If you file after it is garnished and sent to the judgment creditor, you may be able to recover it as a preferential payment.

3. Disclose, disclose, disclose.  A tax refund or credit is an asset even if you haven’t received it yet. You must disclose what you think or know you will be getting on Schedule B of the bankruptcy petition and then exempt the refund on Schedule C. Failure to list a tax refund as an asset will likely result in losing your tax refund to the Trustee and your creditors.

4. If you are in a Chapter 13, you may be able to keep some or all of your Federal tax refund. As discussed in a prior post,  you must turn over  your Federal tax refunds to the Chapter 13 Trustee for distribution to your creditors. Your bankruptcy judge may allow you to keep it if you can show you need it. Maybe you need it for a necessary repair to the house, a repair to a car, or a new washing machine if your old one broke.

5. Prepare your tax returns. This sounds really basic but it’s critical. Bankruptcy requires all your tax returns to be filed by the Section 341 Meeting of the Creditors. Failure to do so can result in a dismissal of your case. Also, if you don’t know what you are getting back, you will not be able to protect it. Your Chapter 7 Trustee may keep your case open until the tax returns are done so he can see how much money he can seize.

Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area.

Which Comes First: Bankruptcy or Divorce?

wooden chickens 300x200 Which Comes First: Bankruptcy or Divorce?

Which Comes First: Bankruptcy or Divorce?

It’s all about timing. When considering a bankruptcy and a divorce, should you file the bankruptcy before, during, or after the divorce? Filing bankruptcy before a divorce can make both less expensive and maybe even less complicated.

Divorce and the Automatic Stay

If the bankruptcy petition is filed during the divorce, the divorce action is stopped in its tracks by the automatic stay. All property of the debtors becomes property of the bankruptcy estate and cannot be divided up in any property settlement until either the bankruptcy is over or permission is received from the bankruptcy judge. This automatic stay does not apply to child support, spousal support, or custody and parenting time but only to property division. While it may be necessary to file during a divorce, just understand it will slow down the process.

Costs of Bankruptcy and Divorce

Bankruptcy filing fees are the same whether you file jointly or individually. Also, most attorneys charge the same fees for either a single person or a married couple. Once the debt is gone, arguments about apportionment of debts between spouses is unnecessary which should lower your divorce costs.

Chapter 7 vs. Chapter 13

A Chapter 7 takes anywhere from three to four months to complete. It is an efficient, cost effective way to eliminate debt so it is a quick way to dump your debt without unreasonably prolonging your divorce.

If a Chapter 13 is necessary, consider holding off until after the divorce is over if possible as a Chapter 13 payment plan can be up to 60 months long. Most people don’t want to stay in a bad marriage until the plan is over.

Eligibility for Chapter 7

The income of both spouses is used to determine eligibility for a Chapter 7 bankruptcy. Sometimes, a person’s income would be too much to be eligible for a Chapter 7 if filing by themselves but if that would change if using all of the dependents in the home Other times, a couple has to file a Chapter 13 because they earn too much to do a Chapter 7. In that case, it may be necessary to file after a divorce. For example, if the eligibility for a two person household is $55,000 and both spouses make $35,000 each, they are not eligible to file a Chapter 7. However, since a single filer can earn up to $44,000, they filers would be individually eligible after their divorce.

Have more questions? Give us a call at 313-291-0240.

Chris McAvoy is a  Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City,  Canton and the Downriver, Michigan area.

Michigan Estate Tax Basics

taxes 300x262 Michigan Estate Tax Basics

The Michigan Estate Tax

There is only one thing you need to know about the Michigan estate tax. As of December 31, 2004, there is no death or estate tax for decedents (people who died), their heirs or their estates. Zero. Nothing. There are no Estate Tax Forms to be filed with the Michigan Department of Treasury.

If the decedent passed away prior to 2005, the estate tax is equal to the federal death tax credit. In 2004 for example, the federal estate value had to exceed $1,500,000. If the estate was greater than that amount, then anything over that credit would be taxed at 40%. But this was ten years ago and, while some probate estates are opened in Michigan years after a person passes away, it is the exception. For most people, there is no concern about Michigan estate or death taxes.

The Federal Death Tax

After much uncertainty, Congress stabilized the Federal Estate Tax, also known as the death tax. In 2013, the first $5,250,000 of the gross value of the estate is tax free. Anything over that amount is taxed at 40%. The exemption is adjusted annually. In 2014, it is $5,340,000.

Married people get to double the exemption and, if one spouse dies and doesn’t use all of his or her available exemption, the surviving spouse can claim the deceased spouse’s unused portion plus their full exemption. This is known as tax portability. There are still forms to file with the IRS and you should contact an experienced CPA or lawyer to help.

I hope you have so much money that this is a concern otherwise, don’t spend a lot of time worrying about paying estate taxes. For the vast majority of clients for whom I draft estate plans or for the estates I probate in Michigan, death taxes are not an issue.

Ready to talk? Give us a call at 313-291-0240.

Chris McAvoy is a  Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City,  Canton and the Downriver, Michigan area.

Keep Your Car In A Michigan Bankruptcy

Keep or Surrender Your Car – That is The Question.

Most every bankruptcy filer in a Chapter 7 or Chapter 13 bankruptcy in Michigan is able to keep their car when they file for bankruptcy if they want to. Some people don’t want their car anymore. Maybe it is worth less that what is owed or the interest rate and payments are too high. Maybe it is a lemon and needs repair. The first decision is whether to keep or surrender the car. If you decide to give it back to the lender, any deficiency or amounts owed will be discharged in your bankruptcy. If you don’t want the car or can’t afford it, give it back.

Reaffirming the Car Loan

If you want to keep the car, most (but not all) lenders require the debtor sign a reaffirmation agreement. Reaffirming the debt keeps the contract going and, after the bankruptcy is over, the debt remains. If you fail to make payments and the car is repossessed, you are on the hook.

Redeeming the Car

Redemption is when the debtor pays the lender the retail value of the car in a lump sum. If the redemption amount is less than the amount owed, the unpaid balance of the loan is discharged. There are some lenders that offer redemption loans to do this. If the debtor and the lender are unable to reach an agreement on the retail value of the vehicle, a judge will decide it after a hearing.

How Much Equity Can You Have?

If your car is paid off or is worth more than what you owe, you must protect the equity by using a motor vehicle exemption. In Michigan, a bankruptcy filer may protect up to $3,675 in one motor vehicle when using the federal exemptions. If you need more, you can use any unused amounts of your wildcard exemption. A good bankruptcy lawyer will help you maximize your exemptions. A vast majority of our clients discharge all of their debt while keeping all of their things.

Chris McAvoy is a Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City, Canton and the Downriver, Michigan area