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I have two questions for someone who who is familiar with…

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Hi. I have...

Hi. I have two questions for someone who who is familiar with tax law and divorce.

Lawyer's Assistant: Because family law varies from place to place, can you tell me what state this is in?

VA

Lawyer's Assistant: Have you talked to a lawyer yet?

I have a lawyer but the tax piece is outside of her comfort zone

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

This has to do with taxation on stock options awarded post-divorce.

Submitted: 7 months ago.Category: Legal
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9/25/2017
Lawyer: legalgems, Lawyer replied 7 months ago
legalgems
legalgems, Lawyer
Category: Legal
Satisfied Customers: 12,978
Experience: Just Answer consultant at Self employed
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Hello! I will be reviewing your question and posting a response momentarily; if you have any follow up questions please respond here. Thanks!

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Lawyer: legalgems, Lawyer replied 7 months ago

If you post your question I can review it and see if I can help.

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Customer reply replied 7 months ago
Two questions concerning post-divorce stock options my company paid to me (I had no choice, company was sold) and the taxes due by my ex. PSA states: "Wife shall be responsible for the payment of any and all taxes due as a result of purchasing/selling her shares." Prior to the time of payout, I asked employer to take out 35% (instead of 25%) for Federal withholding due to expected liability. Thus, payout was: Options payout from company – 35% federal tax, and employer determined state tax, and FICA.Question 1: I hit my 2017 SSN cap when approx. $4K in SSN tax was paid towards the options. Ex is trying to argue that she doesn’t owe half of the $2K SSN tax because I hit the max and will in effect recoup this during the year. I say yes because it was owed at the time of payout? Thoughts?2) Ex initially tried to argue that 35% withholding was unreasonable and it should be 25% and that I owe her the ½ of the extra 10% and that she would settle up next spring if necessary. She won’t, which is why I did this. Am I vulnerable in court on this?Thanks
Lawyer: legalgems, Lawyer replied 7 months ago

If the PSA states that wife is only responsible for taxes due as a result of purchasing/selling her shares, then to deduct SSN and a 35% withholding that exceeds the amount that would be a violation of that provision. Normally the parties are credited their pro rata share of any withheld tax that is not in fact used for their portion of the shares for which they are responsible. This is similar to when parties get a refund, normally it will be divided between the parties.

It is possible to ask for a declaratory judgment from the judge to get a definitive decision as to what the parties' liabilities are. This is done whenever it is not precisely clear from reviewing the document as to what the expectations are. Another possibility is to agree to place in escrow any disputed funds and to have an accounting once the tax issue is resolved. An attorney or a bank can serve as escrow.

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Customer reply replied 7 months ago
Clarification: The 35% withholding represents, almost to the penny, what my federal tax liability represents based upon the tax liability of the options payout; something my ex does not dispute.The issue: Is she responsible for also incurring 1/2 of the social security tax that was withheld from the options payout? I would think the "any and all taxes due" would seem to indicate yes. She is stipulating that she should not have to pay since by reaching my SSN cap, I will recoup the overage down the road.
Customer reply replied 7 months ago
The 35% represents almost to the penny, what my federal tax withholding will need to be given the distributions.. something my ex doesn't dispute. She just feels that her half of the 25% should have been taken and and next spring she could pay me the other half of the remaining 10%The main issue is: Is she responsible for paying 1/2 of the Social Security tax that was withheld at the time of the distribution? My position is yes because that was a tax due at the time. Her position is no because the distribution helped me reach my SSN cap and I would recoup the amounts I would have otherwise paid, in subsequent pay checks.
Lawyer: legalgems, Lawyer replied 7 months ago

Normally the intent of the parties at the time of the contract's execution is controlling- if the intent is to charge each party their share in taxes, as due "as a result" - one could argue social security taxes are not a result since they will be recouped. It would be similar to charging a parent for medical expenses of a child when incurred, even though they would be reimbursed by medical insurance.

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Lawyer: legalgems, Lawyer replied 7 months ago

Hello again; just checking in to see how things worked out;

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