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CDFA > Glossary Terms > Flashcards

Glossary Terms Flashcards

1
Q

A person who is qualified to keep, audit, and inspect the financial records of individuals or business concerns and prepares financial and tax reports

A

Accountant

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2
Q

A person whose work is to calculate statistically risks, premiums, and life expectancy for insurance and pension plans.

A

Actuary

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3
Q

A person who is legally qualified and licensed to represent a person in a legal matter, such as a transaction or lawsuit.

A

Attorney

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4
Q

An individual who is trained in evaluating and assigning a value to a business.

A

Business Valuator

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5
Q

An individual who has been trained to assist people in coming to an agreement, especially one that reconciles differences between disputants.

A

Mediator

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6
Q

An individual who is qualified to calculate the value of benefit pension plans, such as the marital portion of a plan for the division of assets in divorce.

A

Pension Valuator

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7
Q

The act of forgiving one’s spouse who has committed an act of wrongdoing that would constitute grounds for divorce. Generally is proven by living and cohabitating with the spouse after learning that the wrongdoing was committed. It is often used as a defense in divorce.

A

Condonation

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8
Q

An order by the court stating that a conditional divorce will become absolute by a certain date, unless a party contests the order.

A

Decree Nisi/ Rule Nisi

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9
Q

Establishes certain legal responsibilities while the parties are separated but does not end the marriage. Also referred to as legal separation.

A

Limited Divorce

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10
Q

A temporary order of the court that provides support until the divorce is finalized.

A

Pendente Lite Support

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11
Q

Starts with the solution. One party proposes a solution and the other party makes an offer. Counteroffers are made until a resolution is found that works for both parties.

A

Positional Bargaining

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12
Q

Decisions found in other pre-existing cases which factor into the case at hand.

A

Precedent

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13
Q

The right of a spouse to make admissions to an attorney, clergyman, psychiatrist, or others as designated by state law that are not later admissible as evidence.

A

Privilege

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14
Q

Where opening counsel has the opportunity to disqualify an expert witness.

A

Voir Dire

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15
Q

A form issued by the court directing a party to respond to a complaint, motion, or petition.

A

Writ of Summons

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16
Q

Cash, property, investments, goodwill, and other items of value (as defined by state law) that appear on a balance sheet indicating the net worth of an individual or a business.

A

ASSETS

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17
Q

Collection of financial data that includes information on assets and liabilities. Key documents used are the Financial Affidavit and Asset and Liability Comparison worksheet.

A

Asset Inventory

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18
Q

Services, money, or goods owed by one party to another.

A

Debt

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19
Q

Key document used to collect financial data; in some states, it may be known as a “Financial Statement” and may use a standard form. This document becomes part of the record of documents that are filed with the court. Included in the Financial Affidavit are all income and deductions from income, all living expenses, all assets, and all liabilities.

A

Financial Affidavit

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20
Q

Procedure for determining the fair market value of an asset when it is to be sold or divided as part of the divorce process.

A

Appraisal

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21
Q

Assets tied to one’s career (e.g., health insurance, stock options, retirement plans, etc.)

A

Career Asset

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22
Q

In community property states, any property not deemed “separate” (i.e., owned before the marriage or obtained by gift or inheritance) is “community” property and will likely be subject to a 50/50 division.

A

Community Property

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23
Q

Means fair; does not necessarily mean equal.

A

Equitable

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24
Q

Method of dividing property based on a number of considerations (such as length of marriage, differences in age, wealth, earning potential, and health of partners involved) to achieve an equitable and fair distribution—not necessarily an equal one.

A

Equitable Distribution of Property

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25
Q

The value of a business beyond its sales revenue, inventory, and other tangible assets: including prestige, name recognition, and customer loyalty.

A

Goodwill

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26
Q

A piece of property cannot be transferred during a pending lawsuit that may change the disposition of it once a notice has been filed in the public record.

A

Lis Pendens

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27
Q

A note from the payor to the payee for an agreed-upon length of time with a reasonable interest rate. Can be collateralized.

A

Property Settlement Note

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28
Q

This section of the IRS Code states that any transfer of property between spouses during marriage (or former spouses if it is incident to divorce) is tax-free. No gain or loss is recognized and for income tax purposes, the transferee’s basis and holding period in the property is the adjusted basis and holding period of the transferor. An assignment of an annuity contract is non-taxable for both the transferor spouse and the transferee spouse under this section.

A

Section 1041

29
Q

Added Code Sec. 1041, which allows marital property to be transferred back and forth between spouses without creating any tax on the transfer. The income tax basis of each asset is the basis of the asset in the hands of the transferor. TRA simplified the definition of spousal support, and it prevents property settlements from being disguised as spousal support.

A

Tax Reform Act of 1984 (TRA)

30
Q

One of three methods that can be used to divide pension benefits. No present value is determined. Each spouse is awarded a share of the benefits if and when they are paid.

A

Deferred Division or Future Share Method

30
Q

One of three methods that can be used to divide pension benefits. No present value is determined. Each spouse is awarded a share of the benefits if and when they are paid.

A

Deferred Division or Future Share Method

31
Q

Type of employer-sponsored pension plan that promises to pay the employee a certain amount per month at retirement time. It does not have a cash value today.

A

Defined Benefit Plan

32
Q

A federal law that sets minimum standards for pension plans in private industry. ERISA does not require any employer to establish a pension plan—it only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit. ERISA requires plans to regularly provide participants with information about the plan including information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual, and funding; requires accountability of plan fiduciaries; and gives participants the right to sue for benefits and breaches of fiduciary duty. ERISA also guarantees payment of certain benefits through the Pension Benefit Guaranty Corporation, a federally chartered corporation, if a defined plan is terminated.

A

Employee Retirement Income Security Act (ERISA) of 1974

33
Q

A federal corporation created by the government that announces monthly interest rates (for the following month) that are used to calculate the present value of pension plans. This rate is based on average annuity rates.

A

Pension Benefit Guaranty Corporation (PBGC)

34
Q

A court ruling earmarking a portion of a person’s retirement or pension fund payments to be paid to his/her ex-spouse as part of a division of marital assets. The fund administrator makes payments directly to the non-employee ex-spouse at the time of the divorce or at the time the employee’s retirement payments are to begin.

A

Qualified Domestic Relations Order (QDRO)

35
Q

One of three methods that can be used to divide pension benefits. In this instance, the court retains authority to order distributions from a pension plan at some point in the future.

A

Reserved Jurisdiction

36
Q

This Act amended ERISA to introduce mandatory spousal rights in pension plans so the choice of the form of the benefit received from a pension plan was no longer solely the participant’s choice.

A

Retirement Equity Act of 1984 (REA)

37
Q

This section of the IRS Code allows the alternate payee to receive money from a qualified plan, pursuant to a QDRO, without having to pay a 10% tax penalty. The distribution would still be subject to ordinary income tax.

A

Section 72

38
Q

A profit from the sale of a property or investment.

A

Capital Gain

39
Q

The original value of an asset for tax purposes.

A

Cost Basis

40
Q

The point at which a minor child comes of age. Children are emancipated in most states upon reaching the age of 18, 19, or 21, or upon marriage, full-time employment, graduation from high school, or entering the armed services. Emancipation is the point where parents have no further legal or financial obligations for a child’s support.

A

Emancipation

41
Q

A loan having a balance that exceeds the current market value of the loan:

A

Underwater

42
Q

A deed that conveys to the grantee only such interests in property as the grantor may have, the grantee assuming responsibility for any claims brought against the property.

A

Quitclaim Deed

43
Q

The difference between the amount of spousal or child support paid, if any, and the amount required under court order.

A

Arrearages

44
Q

A nonrefundable childcare tax credit available to the custodial parent who pays for child or dependent care expenses so that they can be gainfully employed.

A

Childcare Credit

45
Q

States that if any amount of spousal support specified in the divorce decree is reduced: (a) upon the happening of any contingency related to the child; or (b) at a time that can be clearly associated with a contingency related to the child, then the amount of the reduction will be treated as child support, rather than spousal support. These payments will be considered child support when the payments begin. (IRS Code Sec 71(c)(2))

A

Child Contingency Rule

46
Q

Second provision in the Child Contingency rule when there is more than one child. If spousal support payments are reduced on two or more occasions, which occur not more than one year before or after each child reaches a certain age, then it is presumed that the amount of the reduction is child support. The age at which the reduction occurs must be between 18 and 24 inclusive and must be the same for each of the children.

A

Multiple-Reduction Rule

47
Q

Requires certain spousal support payments to be included in the recipient spouse’s income and permitted the payor spouse to deduct these payments as an itemized deduction.

A

Revenue Act of 1942

48
Q

This section of the IRS Code states that the custodial parent is entitled to an increased earned tax income credit if he or she has a qualifying child and meets the requirements.

A

Section 32 EITC IRC

49
Q

This section of the IRS Code states that alimony and separate maintenance payments are generally taxable to the recipient and deductible from gross income by the payor. These payments can be treated as alimony for tax purposes if:

The payment is made in cash, check, or money order.
There must be a written court order or separation agreement.
The couple may not agree that the payments are not to receive alimony tax treatment.
They may not be residing in the same household.
They may not file a joint tax return.
No portion of the payment may be considered child support.

Additionally, requires that if the payor of alimony wants to deduct alimony payments over $15,000 per year, payments must last for at least three years. If this requirement is not met, payments are subject to recapture rules.

A

Section 71 Payments

50
Q

Provision of the Child Contingency Rule that states when the spousal support payments are to be reduced not more than six months before or after the date on which the child reaches 18, 21, or the age of majority in their state. (IRS Code Sec. 71(c)(2))

A

Six-Month Rule

51
Q

Under Internal Revenue Code (IRC) § 71, recapture requirements apply if excess alimony (also commonly known as “spousal support”) payments are front-loaded into the first three post-separation years.

A

Spousal Support Recapture

52
Q

The Act signed into law in December 2017, that made significant changes for individual and business taxpayers. Changes included reduction of the personal exemption to zero, increase in the standard deduction amounts and major changes to itemized deductions.

A

Tax Cuts and Jobs Act (TCJA)

53
Q

This Act permitted spousal support to be deductible in arriving at adjusted gross income so that the tax payer who does not itemize deductions may nevertheless deduct spousal support.

A

Tax Reform Act of 1976

54
Q

Tax strategy that involves “bunching” itemized deductions so that they are high in one year and low the following year. The standard deduction can be used on the alternate year.

A

Bunching Deductions

54
Q

Tax strategy that involves “bunching” itemized deductions so that they are high in one year and low the following year. The standard deduction can be used on the alternate year.

A

Bunching Deductions

55
Q

A custodial parent is entitled to an increased tax income credit if he or she has a qualifying child that meets IRS requirements.

A

Earned Income Tax Credit (IRC Section 32)

56
Q

Provides tax liability relief for a spouse who signs a joint tax return and has no knowledge of the understatement of tax. In order to qualify, the following requirements must be met:

That a joint return was filed.
There was an understatement of tax attributable to erroneous items from one spouse filing the joint return.
That in signing the return, the innocent spouse did not know and had no reason to know, and there was an understatement of tax.
That taking into account all of the facts and circumstances, it would be inequitable to hold the innocent spouse liable for the deficiency in tax.
The innocent spouse elects the benefits no later than two years after the date the IRS has begun collection activities with respect to the individual making the election.

A

Innocent Spouse Rule (IRC Section 6015)

57
Q

A tax deduction for individual taxpayer and any qualifying dependents they support.

A

Personal Exemption

58
Q

This section of the IRS Code states that a spouse is considered abandoned when all of the following conditions are met:

The abandoned spouse pays more than half the cost of maintaining his/her household for the taxable year.

The individual files a separate tax return.

The individual’s household is the principal home of a dependent child for more than six months of the tax year and the individual is entitled to claim the dependency exemption (even if no claim is made).

The individual lives in a residence separate from his /her spouse for the last six months of the tax year.

A

Section 7703(b)

59
Q

A type of bankruptcy filing that allows you to liquidate all of your assets and use the proceeds to pay off your debts, erasing your debts that cannot be paid off in full. All unsecured debts are forgiven and all assets over statutory minimum protected amounts are forfeited.

A

Chapter 7 Bankruptcy

60
Q

Type of bankruptcy filing that allows you to develop a pay-off plan over a 3-year period. Some of the debts may be discharged.

A

Chapter 13 Bankruptcy

61
Q

Law passed in 1986. It allows an ex-spouse to continue to receive health insurance coverage from his/her former spouse’s employer if the employer has at least 20 employees, for up to three years after the divorce. Premiums for this coverage are typically higher than when they were covered under the employer’s plan. It should be noted that the normal provision states that if an employee leaves or is fired from a job, he or she can get health insurance from that company for 18 months. However, in the case of a divorce it is extended to three years or 36 months.

A

COBRA

62
Q

The measure of trustworthiness of repayment of a loan based on income, past credit history, assets, and liabilities. It should be noted that after the divorce the former spouses’ past credit history might affect the ex-spouse.

A

Credit

63
Q

Any debt incurred in acquiring, constructing, or substantially improving a principal residence and which is secured by the principal residence. It also includes any debt secured by the principal residence resulting from the refinancing of debt incurred to acquire, construct, or substantially improve the principal residence but only to the extent the amount of debt does not exceed the amount refinanced debt.

A

Qualified Principal Residence Indebtedness

64
Q

A loan secured by collateral to reduce the risk associated with lending. Mortgages and auto loans are examples.

A

Secured Debt

65
Q

For three years after a divorce, the IRS can perform random audits of joint tax returns. The divorce agreement should provide instructions and where the money should come from if an audit is involved.

A

Tax Debt

66
Q

A loan that is not secured by an underlying asset. Includes credit cards, personal bank loans, lines of credit, and loans from family or friends.

A

Unsecured Debt

CDFA (5 decks)

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