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Author: diat Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120780  
Subject: Bad Debt Date: 12/11/2007 12:46 PM
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Hello,

My soon to be ex-husband started a business in early 2006. My name is not anywhere on the business. I took cash out of my Universal Life insurance policy to fund equipment purchases. Later in the year, I had him sign a loan agreement and had it notarized. The agreement detailed how much he owed, how much his monthly payments would be, the interest rate, and any late fees associated with it. The loan agreement was to the business and him. Unfortunately, he never paid me back any money. It has been well over a year since the agreement was signed and notarized. Honestly, at this time, I do not expect to get any money from him. My divorce will be final in January 2008. Can I write this off as bad debt on my 2008 taxes?

Thanks,
DIAT
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 97171 of 120780
Subject: Re: Bad Debt Date: 12/11/2007 1:02 PM
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My soon to be ex-husband started a business in early 2006. My name is not anywhere on the business. I took cash out of my Universal Life insurance policy to fund equipment purchases. Later in the year, I had him sign a loan agreement and had it notarized. The agreement detailed how much he owed, how much his monthly payments would be, the interest rate, and any late fees associated with it. The loan agreement was to the business and him. Unfortunately, he never paid me back any money. It has been well over a year since the agreement was signed and notarized. Honestly, at this time, I do not expect to get any money from him. My divorce will be final in January 2008. Can I write this off as bad debt on my 2008 taxes?

I have two questions, which may actually be one in different forms:

1. How is the debt addressed in the divorce property settlement?

2. How does state law treat promissory notes between spouses?

Phil

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Author: diat Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 97175 of 120780
Subject: Re: Bad Debt Date: 12/11/2007 7:47 PM
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We don't have a property settlement. Basically, he keeps what he had, and I keep what I had. He bought the house before we were married, so I let him keep it. We pretty much kept our finances separate. I filed for an absolute divorce. Basically, after 30 days of him being served and not contesting anything, the divorce papers are filed with the court and the divorce is final. I decided to go this route because it would cost more money in attorney's fees than what we were disputing. Also, I loaned the money to the business. Would it still count as marital property because he owns the business? BTW, we live in NC.

Thanks,
DIAT

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 97176 of 120780
Subject: Re: Bad Debt Date: 12/11/2007 10:14 PM
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We don't have a property settlement. Basically, he keeps what he had, and I keep what I had. He bought the house before we were married, so I let him keep it.

Your second sentence sounds like a property settlement to me. I've never seen a divorce decree that didn't deal with property and debts, but maybe they do things differently in NC.

It doesn't sound to me like you have a bad debt for tax purposes. For starters, assuming the debt remains valid after the divorce, you have to try to collect. See IRS Publication 550. He has assets. Why aren't you collecting the debt?

It sounds like you're trying to do the divorce without lawyers, and it seems to me that's leaving you with some unresolved issues.

Phil

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Author: diat Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 97186 of 120780
Subject: Re: Bad Debt Date: 12/13/2007 1:02 PM
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Thanks Phil,

This is technically property settlement. But in NC, people can get an absolute divorce by filing paperwork if no property settlement agreement is needed. I loaned him $4000 to buy equipment. It would cost each of us around $8000 to pay lawyers to draft a property settlement agreement. I decided that it was foolish to pay $8000 just to recover $4000. I have already made peace with the fact that I will never see this money again. I just wondered if I could claim it on my taxes as bad debt.

Thanks,
DIAT

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