Interesting USTC CAse re: CA Community Property

"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

> Stuart A. Bronstein wrote:

> > Right. But the bonus was, at least in part, due to services
> > performed while married. To the extent that was true, it
> > was a community asset.

> I understand your point. But, I won't stop advising that a
> divorce decree SHOULD include QDRO or alimony provisions
> when appropriate, even though community property law ~might~
> render them unnecessary.

You're absolutely right. Just because it's community
property doesn't mean that the calculation of who gets what
is any easier.

Stu

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MTW wrote:
- quote -

> Stuart A. Bronstein wrote:

> > I haven't read the case yet, but it makes sense to me. If
> > it was community property under state law, it was never the
> > taxpayer's money in the first place. So how could he be
> > taxed on turning property over to his spouse that had always
> > been hers?

> The thing I don't get is how can income realized AFTER the
> marriage has terminated still be considered as "community?"

Simple: If it wasn't addressed in the divorce property
split, then each spouse STILL HAS his/her own share.

- quote -

> OK, I suppose that if the amount was accrued WITH CERTAINLY
> prior to the end of the marriage, then it would retain its
> "community" characteristic even if actually received later.
> But what if the amount are NOT known with certainty, or is
> subject to forfeiture, etc., etc.?
> I had a case a few years back where the client (in a
> community property state) got divorced BEFORE receiving his
> annual salary bonus for the year. The Ex insisted that she
> receive half of the bonus if or when paid. I argued that my
> client needed a definitive "alimony" provision within the
> settlement to assure his ability to deduct or exclude this
> amount. But, the client's attorney refused to hear of that,
> claiming instead that the situation was ~obviously~ covered
> by community property law. Even though the employer USUALLY
> paid annual bonuses, there was no vested entitlement to
> such, and the amount was not known at the time of the
> divorce. My client's understanding was that he would not
> receive anything in this regard if he was not still employed
> AT THE TIME the bonus was paid, several months after the
> company's fiscal year end (and, indeed, several months after
> the marriage was terminated).

That's different because there was no vested interest in a
bonus that may or may not be paid [as you noted].

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Stuart A. Bronstein wrote:

- quote -

> Right. But the bonus was, at least in part, due to services
> performed while married. To the extent that was true, it
> was a community asset.

I understand your point. But, I won't stop advising that a
divorce decree SHOULD include QDRO or alimony provisions
when appropriate, even though community property law ~might~
render them unnecessary.

MTW

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

> Stuart A. Bronstein wrote:

> > I haven't read the case yet, but it makes sense to me. If
> > it was community property under state law, it was never the
> > taxpayer's money in the first place. So how could he be
> > taxed on turning property over to his spouse that had always
> > been hers?

> The thing I don't get is how can income realized AFTER the
> marriage has terminated still be considered as "community?"

It doesn't really. The calculation of spousal rights in a
pension is based on the length of the marriage compared to
the time the employee participated in the plan.

With respect to something like real estate, it doesn't
really accumulate community property after separation. But
when each is the owner of half on the date of separation,
any increase in value is owed half to each just based on
ownership.

- quote -

> OK, I suppose that if the amount was accrued WITH CERTAINLY
> prior to the end of the marriage, then it would retain its
> "community" characteristic even if actually received later.
> But what if the amount are NOT known with certainty, or is
> subject to forfeiture, etc., etc.?

An actuary makes a calculation to determine each spouse's
interest.

- quote -

> I had a case a few years back where the client (in a
> community property state) got divorced BEFORE receiving his
> annual salary bonus for the year. The Ex insisted that she
> receive half of the bonus if or when paid. I argued that my
> client needed a definitive "alimony" provision within the
> settlement to assure his ability to deduct or exclude this
> amount. But, the client's attorney refused to hear of that,
> claiming instead that the situation was ~obviously~ covered
> by community property law. Even though the employer USUALLY
> paid annual bonuses, there was no vested entitlement to
> such, and the amount was not known at the time of the
> divorce. My client's understanding was that he would not
> receive anything in this regard if he was not still employed
> AT THE TIME the bonus was paid, several months after the
> company's fiscal year end (and, indeed, several months after
> the marriage was terminated).

Right. But the bonus was, at least in part, due to services
performed while married. To the extent that was true, it
was a community asset. It might have been different if the
boss had specified that the bonus was for work performed on
a specific file, all of which was done after separation.

Stu

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Stuart A. Bronstein wrote:

- quote -

> I haven't read the case yet, but it makes sense to me. If
> it was community property under state law, it was never the
> taxpayer's money in the first place. So how could he be
> taxed on turning property over to his spouse that had always
> been hers?

The thing I don't get is how can income realized AFTER the
marriage has terminated still be considered as "community?"

OK, I suppose that if the amount was accrued WITH CERTAINLY
prior to the end of the marriage, then it would retain its
"community" characteristic even if actually received later.
But what if the amount are NOT known with certainty, or is
subject to forfeiture, etc., etc.?

I had a case a few years back where the client (in a
community property state) got divorced BEFORE receiving his
annual salary bonus for the year. The Ex insisted that she
receive half of the bonus if or when paid. I argued that my
client needed a definitive "alimony" provision within the
settlement to assure his ability to deduct or exclude this
amount. But, the client's attorney refused to hear of that,
claiming instead that the situation was ~obviously~ covered
by community property law. Even though the employer USUALLY
paid annual bonuses, there was no vested entitlement to
such, and the amount was not known at the time of the
divorce. My client's understanding was that he would not
receive anything in this regard if he was not still employed
AT THE TIME the bonus was paid, several months after the
company's fiscal year end (and, indeed, several months after
the marriage was terminated).

MTW

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

> A.G. Kalman wrote:

> > A recent USTC decision (Dunkin vs Comm'r, 124 T.c. 10,
> > 3/31/05) went against the IRS and ruled that a taxpayer
> > ordered to pay his former spouse her community property
> > interest in his defined benefit plan could exclude the
> > payments he made from income.

> This case is interesting because it demonstrates that, every
> now and then, community property concepts trump EVERYTHING.
> The trick is know when that is the case, and when it is not.
> <grin
I haven't read the case yet, but it makes sense to me. If

it was community property under state law, it was never the
taxpayer's money in the first place. So how could he be
taxed on turning property over to his spouse that had always
been hers?

Stu

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A.G. Kalman wrote:

- quote -

> A recent USTC decision (Dunkin vs Comm'r, 124 T.c. 10,
> 3/31/05) went against the IRS and ruled that a taxpayer
> ordered to pay his former spouse her community property
> interest in his defined benefit plan could exclude the
> payments he made from income.

This case is interesting because it demonstrates that, every
now and then, community property concepts trump EVERYTHING.
The trick is know when that is the case, and when it is not.
<grin
Some of the other cases cited in this case, such as Poe vs
Seaborn, also make for interesting reading. These cases
harken back to simpler times when (apparently) the HUSBAND
was deemed by law to be the sole "manager" or "agent" with
respect to community property. WOW! <grin
MTW

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A recent USTC decision (Dunkin vs Comm'r, 124 T.c. 10,
3/31/05) went against the IRS and ruled that a taxpayer
ordered to pay his former spouse her community property
interest in his defined benefit plan could exclude the
payments he made from income. The taxpayer had not yet
retired and there was no QDRO. The opinion also provides
insight to CA community income law.

http://www.ustaxcourt.gov/InOpHistor...kin.TC.WPD.pdf

--
Alan
http://taxtopics.net

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