One of the most significant divorce tax consequences is that you can no longer file joint tax returns. The adage, two live more cheaply than one, is true and taxes are no exception to this rule.
However, skilled divorce lawyers know New York divorce laws and can help you plan your divorce in advance of filing. By planning the details of your divorce and working in tandem with your accountant or divorce financial planner and divorce lawyer, you can minimize tax consequences. The way you structure your divorce decree or settlement makes a considerable difference on taxes owed.
Your tax year ends December 31. If your divorce is not final by the end of the tax year, you must file as a married couple, but still have the option of filing as married filing separately or jointly.
Divorce assets and payments subject to tax laws
You have things to work out like maintenance (alimony), which is subject to the IRS codes. The spouse paying maintenance can claim the payments as a tax deduction. If you receive alimony, you must pay taxes on those payments. When a spouse making more income pays alimony to the spouse making less income, it maximizes tax benefits for both parties.
Child custody is also a factor in figuring out taxes. The parent with whom the child primarily resides can file as Head of Household status. Dependency exemptions can be a term that is negotiated. Child support cannot be deducted by the payor and is not income to the payee.
When you transfer property within one year of your divorce as part of your divorce settlement, the transfer is tax free.
Some spouses own a business together and the transfer or division of those businesses or business interests are ridden with tax loopholes and traps. Many people have complex assets that need to have the tax considerations factored in when dividing and transferring them.
One spouse can roll-over his or her retirement asset to the other spouse’s retirement assets without a tax implication if it is pursuant to a divorce agreement.
Attorneys, tax accountants and divorce financial planners are aware of these factors and one of the benefits of working with them is that you can structure your divorce settlement to minimize taxation and maximize the amount that the spouses receive and retain in settlement.
Understanding how finances relate to divorce is a good reason for using a skilled New York divorce lawyer.