When divorce is on the horizon, it becomes necessary to compile a list of marital property (assets and debts) and supporting documentation as early in the process as possible. But many people have difficulty locating the necessary information. Tax returns are a good place to start when trying to verify sources of income, and to locate the existence of various assets owned. Some of the basic information you can determine from these documents are:
1. Wages, salary, tips, etc. (Line 7)
Income listed here will usually match up to your wage and salary information on your Form W-2.
2. Taxable interest (Line 8a and Schedule B) and tax-exempt interest (Line 8b)
Generally, most income earned over $10 from interest on bank accounts or bonds will be reported on a Form 1099-INT statement. If the income exceeds the $1,500 IRS threshold, then a Schedule B must be completed. This schedule lists the details of each payment and must accompany your tax return. There are some items which may be excluded, such as income earned on certain savings bonds or municipal bonds.
3. Dividends paid on assets owned (Line 9a and 9b)
For the typical investor, ordinary dividends are paid to shareholders when a company is profitable. If an investment you own pays dividends, you will receive a Form 1099 DIV statement listing the taxable amount. You will be required to complete a Schedule B if the amount earned exceeds the $1,500 IRS threshold.
4. Business income or losses (Line 12)
If you or your spouse are self-employed, you are required to detail your business income and expenses on Schedule C to determine the net profit or loss for the year.
5. Gains or losses from investments owned (Line 13)
When you sell capital assets, such as personal property or investments, there is usually a gain or loss associated with the sale. The details on the property will be reported on Schedule D. If one item sold, it could be an indicator that there may be other assets still owned.
6. Withdrawals from IRA accounts (Line 15a) and distributions from pensions/annuities (Line 16a)
Anytime money is removed from a retirement account, it generates a Form 1099-R. Whether or not the money is taxable depends on whether it was received for personal purpose or rolled over into another retirement account.
It amazes me when I ask for copies of tax returns that I will often be supplied with only the first or second main pages of the 1040 Federal tax return. When I inquire about the rest of the return, the answer I often receive is “that’s all my spouse supplied to me.” I suggest always obtaining a complete copy of your tax return. If you have a tax preparer who completes your returns, you can always ask that individual for a complete copy, including all W-2s, 1099s, and supporting documentation. If you don’t want to tip off your spouse that you are contemplating divorce, then you can go in person to your local IRS Taxpayer Assistance Office and obtain copies of your most recent return, and if needed, three prior years. This transcript is not a copy of your actual return, but it will show the basic data and most line items from your tax return as it was originally filed, including any accompanying forms and schedules. If you don’t have access to a local office, you can complete Form 4506-T – Request for Transcript of Tax Return – and make your request via mail or fax. If needed, you can also designate a third party to receive the information.
If you need to request a hard copy of your actual return, then you would need to complete Form 4506 – Request for Copy of Tax Return. This will get you a copy of your complete tax return and all attachments as originally submitted to the IRS, including W-2s, schedules, or amended returns. There is a cost of $50 per return.
During divorce, one party is usually trying to verify the other party’s income, and also whether they are fully disclosing all the assets owned. When you have a complete copy of your tax return along with the supporting attachments, it becomes easier to verify the other party’s income and also what assets may exist to determine if the other party is fully disclosing all of the needed financial information.