Tax Issues Following Divorce
After months — or even years — of legal wrangling, your divorce is finalized and you and your ex-spouse are now free to move on with your lives. However, if either of you were ordered to pay alimony, or if there are children involved, there are tax issues related to the divorce to which you need to be aware. In fact, you may need to revisit these issues as circumstances change.
Common Tax Issues Faced by Couples Once a Divorce is Finalized
Filing status. Your marital status on December 31 determines your options regarding filing status for tax purposes. If your divorce is finalized before the end of the year, you may want to file as head of household rather than as a single person. You can file as head of household — and get a bigger standard deduction — if you had a dependent living with you for more than half the year and you paid more than half of the upkeep on the marital home. An attorney and accountant can advise you whether it is to your advantage to file as head of household or as an unmarried person.
Dependents. Generally, a custodial parent, or a parent who has his or her child the majority of the time throughout the year, is entitled to claim their child as a dependent for income tax purposes. But, there are situations where the non-custodial parent may claim the child. For example, he or she would receive a greater tax benefit for claiming the child than the custodial parent. Or, the custodial parent has agreed to forego the dependent exemption in lieu of another benefit. Moreover, if the parents share custody and would equally benefit from the dependent credit, they may agree to alternate claiming the child. Your attorney and accountant can advise you of your options and help you determine whether there are any financial benefits to having one spouse claim the child over the other.
Child support. Child support payments cannot be claimed as a deduction on the tax return of the parent paying them. Nor are they counted as income to the parent who receives them. However, a parent who pays for his or her child’s medical expenses may deduct those expenses from their income tax return, regardless of whether he or she pays child support or claims the child as a dependent on their income tax return.
Alimony. Alimony may be claimed as a deduction by the paying spouse, and it must be reported as income by the spouse who receives it.
Division of Property. Dividing property may have tax implications, such as how to allocate capital gains or losses, as well as one's basis in the property at the time of the divorce. An attorney and financial advisers can help determine the answers to these questions.
Palatine Divorce Attorney
Taxes are stressful, and divorce can make it even more so. Additionally, divorce raises several different tax issues that you will need to decide upon as part of a divorce agreement. Palatine divorce attorney Nicholas W. Richardson has more than 10 years experience helping clients navigate the tricky post-divorce terrain, and he will guide you on what decision makes the most financial sense for your particular situation. Call his Palatine office today to schedule an appointment.