The Legal Issues 135
will any decent lawyer start work for somebody who can’t pay
at least some kind of initial retainer. My law firm’s policy is to
substantially reduce the level of required retainer for female cli-
ents in this kind of situation, but we can’t drop it to zero. A wife
in this situation has got to come up with some money, somehow,
and she’s got to do it now. Anytime a wife knows beforehand that
she is headed for divorce, she is well advised to start squirreling
away some money in advance for attorney’s fees.
Taxes
What is the difference between a taxidermist and a tax collector? The taxidermist
takes only your skin.
—Mark Twain
Marriage, home ownership, and parenthood all result in signifi-
cant tax consequences. Divorce has its own important tax con-
sequences, some of which have changed with the passage of the
Taxpayer Relief Act of 1997.
How will a divorce settlement be taxed? Generally, a cash settle-
ment representing a division of marital property is not a taxable
event. This is also true for an award of actual property, such as a
house, a car, or a retirement account. The theory is that this is not
income to the spouse who receives it, but is property that has
already been acquired by the spouses through their incomes and
has already been taxed. Therefore, transfers of property between
spouses incident to divorce are not taxable. To be on the safe side,
these transfers should take place no later than one year following
the divorce.
Of course, if you change the character of the property during
or after the divorce, the tax man will be waiting to collect. There’s
the rub.
For example, if a divorcing spouse decides to divide a tax-free
retirement account by withdrawing a portion and giving it to
the other, that withdrawal is a taxable event. A better approach
might be for one spouse to keep the entire account and trade off
some other item of property to the other spouse. If it is necessary
to divide the retirement account, it should be separated into two