I don’t practice family law. I don’t litigate. I don’t take worker’s compensation settlements.
I’m a tax lawyer. I do tax law. And sometimes that means I dip into related areas, but when it gets beyond my area of expertise, I tap into the collective experiences of my colleagues.
This makes sense to me. I don’t go to a podiatrist when my chest hurts. I don’t see a dentist for a broken leg. And I don’t leave my eye exams to my gynecologist.
Folks choose specialties because no person, no matter how smart, how brilliant, how talented, can know everything. And thinking otherwise can get you into trouble.
Just ask Seth Fielding. Fielding is a doctor who claims that he suffered a huge tax bill as a result of a settlement negotiated by his divorce lawyer. Dr. Fielding’s settlement required him to make a significant payment out of “immediately available” funds. Only Dr. Fielding didn’t have that much in the way of “immediately available” funds since he was unable to tap into his Upper West Side apartment before the divorce (he had planned on a mortgage or line of credit). Dr. Fielding claims that Kupferman refused to renegotiate, so he had no alternative but to dip into a retirement account to pay the settlement. Dr. Fielding also claims that Kupferman did not advise him that doing so would result in a huge tax bill.
In fact, according to Dr. Fielding, Kupferman was surprised to learn that there would be tax implications from the withdrawal. According to the complaint, Kupferman actually called Dr. Fielding’s broker “to ask why” the entire amount was not immediately available.
A majority of Dr. Fielding’s investment assets (about 75%) were held in a profit-sharing Keogh plan. A Keogh plan is a retirement plan for self-employed persons. It works like a profit sharing plan in that it’s funded with net earnings from your business or professional income. When money is withdrawn from the plan, it is subject to tax at the ordinary income rates (since it’s pre-tax money to begin with) plus an early withdrawal penalty if the participant has not yet reached retirement age.
So, whereas the settlement might have contemplated an equitable distribution based on a total amount of assets, the post-tax total was much lower. As in six figures lower. Dr. Fielding thought that the negotiated settlement would leave each party with $1.2 million. However, due to the tax burden, Dr. Fielding claims that he was left with $850,000 and the burden of an additional mortgage.
Dr. Fielding filed a malpractice claim against Kupferman in October 2007. It was dismissed by the lower court in January 2009. However, the claim was reinstated by a unanimous panel of the Appellate Division, 1st Department, which found that the evidence “clearly establishes” that the Keogh funds were not “immediately available” for purposes of the settlement. As a further *ouch*, the panel found that there was sufficient evidence to allege that had Fielding not received “faulty advice” from Kupferman, Fielding “would not have incurred the tax liability.”
Procedurally, that’s not a verdict. It means that the trial will go on, since the panel reversed the dismissal. Fielding has since amended his complaint to ask for attorney’s fees. No trial date has been set.
You can read the entire decision, as filed in New York on August 11, here.
Taxpayer asks:
Hello,
I am writing in behalf of my daughter who has a stimulus check from last year that she cant get cashed. She and her husband or soon to be ex have received a $900.00 check that she cant get cashed. He isn’t playing fair and has moved out of the state and is refusing to sign the check or even give her the correct address. I had her mail the check off to him with a stern and direct note attached that he is to sign and send it back uncashed and she would send him his part on return. She sent it off signature required and it was returned as unknown address or person. The address she sent it to was the last known address the divorce attorney used to contact him. What can she do? Their boys are the ones suffering the most by not being able to cash this check…. any ideas?
Taxgirl says:
That stinks. But unfortunately, there’s not a whole lot that you can do. By law, each of your daughter and her ex is considered to receive half of the stimulus payment.
The IRS doesn’t want to play referee in a relationship. If the check is made out to the both of you, the job of the IRS is more or less over. This doesn’t sound like an issue which would lend itself to innocent spouse relief, it’s an issue of endorsing the check. That really makes it more of an asset/income split issue for the divorce.
Since you indicated that there’s a divorce attorney involved, I would suggest contacting him or her to have the court order him to sign the check. That may be tricky because of the location issue.
Other than that, I have no real suggestions (perhaps one of my colleagues might?). Your daughter has already filed the return together with her ex, so she can’t amend to file separately without his consent. And that’s clearly not going to happen.
What I would definitely advise against: signing his name to the check (don’t, don’t, don’t!) or otherwise trying to cash it without his permission. That constitutes fraud and/or theft and would make a bad situation worse.
It just sounds like a terrible situation. Sorry that I can’t be of more help.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
A Seattle area divorce lawyer was convicted earlier in the year of tax evasion charges, making false statements and obstructing justice. Felix Landau may serve up to 18 months in prison for the charges and must pay $61,232 in restitution. He could have been sentenced to up to five years in prison.
Just another run of the mill tax evasion case, right?
Maybe not. Investigators believe that Landau may have been hiding his finances from more than just the IRS: his wife was being duped, as well. In 1999, the divorce lawyer began having an affair. The next three years, 2000 to 2002, are the years for which he was found guilty of understating his income and subsequently shredding more than 50 boxes of financial records. During those years, Landau reported to the IRS – and to his wife’s divorce attorney – that he was taking home as little as $24,000 per year, about $87,000 less than he actually made. Over the next two years, he underreported his income by about $200,000. Rather than report the funds to the IRS and to his wife’s divorce attorney, he was spending the hidden cash on his girlfriend, with trips to Paris and Venice, as well as buying a new home together.
Landau claimed that his actions were the result of mental depression but the judge found that to be inconsistent with his actions.
Taxpayer asks:
7 years ago when I divorced I spent alot of the money I received on my children. Now I read that maybe I could have used the money as a deduction on my taxes. One I bought a $16,000. mobile home, the other I paid off a $10,000 credit card bill. Can I go back or do these items not count? Thank you.
Taxgirl says:
As a mom, I totally get that you wanted to help out your children. And if it made you happy, then it was the right thing for you to do. But with respect to income taxes, it won’t help you.
The only real tax consequences here might be gift taxes – the mobile home for your one child exceeds the annual exclusion for the year (depending on the year in which you made the purchase, that amount was between $10,000 and $13,000). It’s likely not that big a deal here since you have a lifetime gift tax exclusion of $1 million. So, I’m not worried (though if you’ve made a habit of buying pricey things for your children you might want to double check with a tax pro).
But deductions? Nope. Not for these things. Tell your kids they owe you big – and I hope they were truly appreciative of your generosity.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
