How Taxes Can Complicate the Divorce Process

 Posted on August 28, 2019 in Divorce

When going through a divorce, many people wish it was as simple as dividing everything in half and ending the marriage. However, divorce is often much more complicated, and in addition to settling issues like the division of property, couples must also consider how taxes will affect their case. Here are a few ways that taxes can complicate the decisions made during your divorce:

Taxes on Alimony Payments

Recently, the way spousal maintenance (alimony) is taxed changed significantly, although this change only applies to those who finalized their divorce on or after January 1, 2019. For these couples, the person paying alimony cannot deduct the cost of these payments from their taxable income, while the person receiving alimony will not report it as income. This may have a detrimental effect on the amount of maintenance that a person will pay. In some high net worth divorce cases, the spouse paying maintenance may be able to reduce their tax burden by creating a trust that will be used to make payments to their ex-spouse.

Taxes on Real Estate

A person who makes less money than their ex-spouse may wish to keep the family home in the divorce instead of spending more money to buy or rent a new home. However, recent changes to the tax codes could also affect this decision. State and local property taxes are no longer fully deductible from federal taxes, and this could mean that the spouse who keeps the home may not be able to afford to pay property taxes. In many cases, it can be more beneficial to sell the house during the divorce and divide the proceeds between the spouses.

Tax Deductions and Credits for Dependents

Following divorce, only one parent may claim a child as a dependent on their taxes. While the parent with the majority of the parenting time (often referred to as the “custodial parent”) is often the one to claim a child, the benefits of doing so have decreased somewhat under the recent changes to the tax laws. Because of this, parents may want to work together to determine how to divide any applicable deductions or credits related to their children in a way that provides the most mutual benefits. It is a good idea to work with an accountant during the divorce process to understand the best tax strategies.

Contact a Wheaton County Divorce Attorney for Tax Issues

The divorce process can be difficult, but with proper planning as to how to handle taxes and other financial issues, you can be prepared for success after your marriage has been legally dissolved. At The Stogsdill Law Firm, P.C. we handle all types of divorce cases, including those dealing with tricky financial situations. We will be there to listen to your concerns and advocate for your interests throughout the divorce process. Call an experienced Wheaton, IL divorce lawyer at 630-462-9500 to arrange a consultation today.

Sources:

https://www.nytimes.com/2019/04/19/your-money/taxes-tips-divorce.html?searchResultPosition=21&login=smartlock&auth=login-smartlock