Question: Before we divorced several years ago, my former husband and I owned all of the stock in a successful hardware business which provided us with health insurance, automobiles, retirement plans, etc. When we divorced, I rolled over my retirement plan into an IRA and sold my interest in the business to my husband for cash and other assets.

I agreed to reduce my monthly alimony in exchange for him continuing to provide me with a new automobile every two years, car insurance, and health insurance through the corporation which my lawyer told me would not cost him anything and, therefore, would not be taxable to me. My ex used the corporation to lease me a vehicle, to pay the insurance and taxes, and to continue my health coverage. Based on my lawyer's advice, I did not report these benefits as income because they were paid by the corporation. Now I am being audited because my ex-husband deducted the payments and am being told I owe taxes, penalties, and interest. I did not plan or budget for this expense. Is there anything I can do?

Answer: Pay the taxes. When a corporation pays personal expenses for its shareholders, the amount of these expenditures are properly reported by the corporation as constructive dividends to the shareholder. In other words, the payments made on your behalf by the corporation have been taxed to your husband personally, and he pays income taxes on these amounts. Since these payments were made for your benefit by the corporation to third parties on your behalf under your divorce agreement, they qualify as alimony.

Bottom Line: The tax effect of payments made under divorce agreements and decrees must be carefully considered and explained prior to signing any documents. Here, even though you received inaccurate advice, you must bear the economic burden of paying the taxes.

Question: My husband and I have not gotten along for years and have decided to separate. I have followed the advice given in your column and, for the past months, I have photocopied everything I could find, and the copies are being held by a friend. I have made an appointment with a lawyer. What steps do I take next?

Answer: It is important to formulate a plan. First, you should decide upon your short-term and long-term goals. If you don't organize and plan now, important details will slip through the cracks. Second, be sure to separate your emotions from the economics and practical issues because emotions should have no place in the decision-making process. You must understand your options before you make decisions. Third, get a basic understanding of how the court system operates in your state. You must know what to expect and when. Since most decisions made by a divorce court are based on the facts in a particular case, there can be no guarantees. Fourth, have a clear understanding of how the facts of your case stack up. Although your lawyer is not a fortune teller, you can find out the range of possible results, the strong and weak points of your case, the best and worst result you can anticipate, the probable length of time complete your case, and the probable cost. Your lawyer is trained to help clarify these areas. And fifth, be prepared to deal with the economics of your situation. In addition to the emotional trauma, you must be prepared to deal with economic matters.