Financial and tax traps of divorce

Practitioners who assist lawyers with the financial and tax aspects of divorce proceedings should develop a checklist to alert the lawyer and client to certain pitfalls that can cause uncertainty either before the final decree of divorce or long after the spouses have gone their separate ways. Problems that focus on the unusual or sometimes hidden issues that usually are not anticipated include: 1. tax basis rules for transfers of property between spouses incident to divorce, 2. credit problems for a former spouse caused by the ex-spouse long after the final decree of divorce is recorded, 3. ex-spouse collects life insurance proceeds and IRA rollover account of deceased spouse, and 4. Section 163(h)(2)(D) permits a taxpayer to deduct interest paid during the taxable year on a mortgage upon real estate of which he is the legal owner.