Divorce typically means you and your spouse will be required to file separate tax returns. Doing so can have a significant impact on your individual tax liability as it may change some of the deductions you previously had available to you. The Internal Revenue Service has numerous tax guidelines to which divorced or separated couples must adhere, and understanding them can be daunting. However, the tax implications of divorce are extremely important and neither spouse can afford to overlook them.
Property-Related Tax Concerns
As homeowners know, property tax and mortgage interest deductions are extremely important when it comes to taxes. When a couple is married, they typically choose to file income taxes jointly so that they can both benefit from these tax deductions. However, when divorce enters the picture, it can be much more complicated and it is important to consider the potential impact of these deductions when determining how to divide assets like the marital home.
If the marital home is sold during the divorce, there may be tax consequences related to any profit gained by both spouses from the sale of that home. If both spouses remain in the home until its sale is final, then any deductions stemming from the home can usually be claimed by both spouses. If only one spouse remains in the home until it is sold, negotiation will play a key role in determining whether that spouse will be solely liable for financial obligations related to the home during that time or whether the costs will be split. These arrangements mean a lot for your financial planning during and after a divorce, and can also have a significant impact on your tax liability.
There are also important considerations related to the division of other assets in the divorce. For instance, transferring assets such as retirement accounts or investment funds can play an important role in determining what your final divorce settlement will look like and also in the potential tax consequences divorce might have for you. An experienced divorce attorney can walk you through the potential tax implications of transferring or dividing certain assets so that you can make informed decisions about how to approach these items during the divorce process.
Spousal support is often a contentious issue in divorce. Aside from the obvious financial impact spousal support will have on both parties, there are also tax consequences related to spousal support payments. Generally, the spouse ordered to pay spousal support – sometimes referred to as maintenance – can deduct those payments on his or her tax return while the spouse receiving such payments must claim them on his or her taxes.
There may be situations in which spousal support actually helps alleviate certain tax concerns stemming from other aspects of the divorce settlement. You may also want to consider whether spousal support is best paid periodically or in a lump sum if you and your spouse are able to agree on these terms, though court-ordered maintenance must usually follow the guidelines set by the court.
Divorce is a complicated process, as is the role spousal support can play if it is a part of your divorce. Your attorney can help you understand the different types of spousal support that may factor into your divorce and how they might impact you during and after a divorce.
When it comes to children, there are a number of difficult issues to tackle in a divorce. You will have to determine issues like custody and child support, which can also impact which parent will be eligible to claim a child as a dependent on an income tax return. Generally, the parent awarded primary custody is legally entitled to claim children from the marriage as dependents. However, there are some arrangements that can be negotiated where the parent with such primary custody can still retain those rights but the other parent might be able to benefit.
There are a number of different approaches you can take to this issue. If you have an even number of children, then you and your spouse may want to split the number of children each of you claims as a dependent on your income taxes. If there is only one child or an odd number of children, this scenario obviously will not work. In those cases, it may be possible to negotiate an arrangement by which you split an odd number of children so that each of you claims the same number of dependents and alternate the year in which each of you will claim the other child. In the case of a single child, alternating the year in which each of you claims that child as a dependent on your income taxes may also be possible.
These solutions are not for everyone. No matter what approach you take, it is important to talk through the potential tax consequences of dependent children with your divorce attorney. This will help them approach negotiations concerning these types of issues with a clearer picture of what you want to accomplish and will help you be more confident in your ability to prepare for the financial consequences of divorce.
Consider a Tax Professional
While your divorce attorney is used to many common tax consequences of divorce and can often provide extensive guidance as you make important decisions that come with tax consequences, complicated finances and tax considerations can benefit from using the services of an accountant and/or a tax professional. This adds some expense to the cost of your divorce, but the rewards of making sure your bases are covered when it comes to taxes often more than make up for the added expense.
Divorce-Related Tax Concerns
Divorce can be a challenging and intimidating process. Working with an experienced Florida divorce attorney can help you approach the process more productively and with more confidence. Working with your attorney can also help you anticipate financial considerations you may have otherwise overlooked, such as important tax consequences that could be related to your divorce settlement. There are important tax considerations to keep in mind other than those discussed here, and your attorney can help you explore them.
If you are considering divorce and have questions about the process or about how tax consequences might impact you based on your individual circumstances, contact Scott J. Stadler to schedule a consultation and find out more information about how he can work with you throughout the divorce process.