Divorce can come with significant tax consequences. We always suggest that you speak with an experienced Florida divorce attorney and/or a financial planner who has experience with the divorce process in order to fully understand the impact taxes might have on you during and after your divorce. As taxes are a complicated subject, it is important to also be aware of some of the potential effects these tax changes might impose on you. The following information, adapted from the United States Internal Revenue Service, provides a basic overview of the most common tax-related concerns that commonly arise during divorce.
Changing Your Name
If you are planning on changing your name after the divorce, it is important that you to notify the proper government agencies as failing to do so can make filing your taxes more difficult. If you will be or have changed your name as part of the divorce process, you need to notify the Social Security Administration before filing your tax return. This is an important step because the name attached to your tax return must match Social Security Administration records. You will also need to complete this process for any dependents who may also be changing their names as a result of divorce.
Filing Your Taxes
You will need to pay special attention to how you file your taxes after a divorce, specifically what your marital status was on the final day of the year for which you are filing a return. This can have a significant impact on your available exemptions as well as your tax liability as a whole. It is recommended that you and your spouse independently calculate your tax liability and whether it will change significantly depending on the status under which you file. While filing jointly may help you retain some deductions and credits that could otherwise be unavailable if you filed when single, you can also be held responsible for the tax liability of your spouse if you file jointly.
Child support payments are not tax deductible. Likewise, if you receive child support payments, then you will not need to report them as income. However, you may want to consider modified child support arrangements based on other factors that could affect your tax liability. For instance, if the custodial parent will remain in the home and shoulder the financial responsibility of the home, you may want to consider and/or modify other support options to account for the added financial responsibility that child support will not cover. Depending on how the custody arrangement is structured, you may also have to worry about which spouse will be eligible to claim children as dependents when filing taxes.
Also known as spousal support, the person responsible for making alimony payments may be able to deduct them. In turn, that means that the person receiving alimony payments may need to report them as income. This tax structure only applies if alimony payments are part of a written court order for your divorce and/or separation. If such payments are not included in the divorce or separation agreement, then they will not be subject to this tax policy.
If you and your spouse have property that needs to be divided as part of the divorce agreement, then there might be important tax implications down the road. Typically, property that is transferred pursuant to a divorce decree is not subject to gift or other taxes. However, it is important to scrutinize the details of such arrangements. You may want to consider the possible tax implications of selling such property later, which could have a sizeable impact on your financial security. Additionally, properties subject to a mortgage may involve significant tax liabilities depending on how they are disposed.
There are additional tax considerations that will come into play if you decide to gift certain assets to your spouse, children, or other parties involved in the divorce to avoid legally dividing such assets in court. On a deeper level, you may also want to consider whether or not there will be an impact on the value of your estate. Many married couples engage in estate planning and have mechanisms within their estate planning documents that will need to be modified in light of a divorce. Additionally, taking ownership of substantial assets as part of a divorce agreement could increase the possibility that your estate would be subject to the estate tax.
Health Care Concerns
Currently, individuals are required to have health insurance for themselves and their dependents or face tax penalties. If you do not qualify for an exemption from this tax liability, then you will need to purchase health care insurance for you and any dependents that may no longer be covered by a joint policy shared during the marriage. Failing to do so could subject you to the related tax penalties for yourself and each uncovered dependent. However, you will be eligible to apply for health care insurance via the Health Insurance Marketplace during a special enrollment period because of a change in circumstances. In situations where you and your spouse are enrolled in the same qualified health plan during the tax year in which you are divorced or separated, then you will need to work together to allocate policy amounts if you are filing separate tax returns. Doing so may require you to address any advance payments that may have been made on your behalf.
Legal Assistance with Your Florida Divorce
The tax consequences discussed above might not affect every Florida divorce, and there may be separate tax issues that will apply to you. Everyone has rights and responsibilities when it comes to taxes that your Florida divorce attorney can help you understand and protect. It is extremely important to work with an experienced Florida family law attorney to best understand how taxes might impact you as a result of splitting with your spouse. Contact Scott J. Stadler to schedule a consultation during which you can find out more information about the Florida divorce process, including how tax considerations may end up affecting you. Your financial security is too important to neglect the impact a change in your taxes could have on you.