Are you considering a divorce, but concerned about the tax implications? It is definitely a good idea to be aware of the financial fallout associated with terminating a marriage. An attorney experienced in family law and divorce can be of assistance with these and other questions you may have as you approach this life changing and economics-altering event.
If We Owe Back Taxes, Who has to Pay Them?
Regardless of who earned all or most of the money when you filed a joint return, you may be responsible for money owed, even if the divorce decree states otherwise. It may come as a surprise that your tax refunds in the future may be used to pay your spouse’s state or federal tax debts. However, you may file for relief from joint liability under certain circumstances.
Can I File an Individual Tax Return if the Divorce is Not Final?
The short answer is yes, if you have a Decree of Separate Maintenance, Judgment of Legal Separation, or Degree of Separation. However, it may behoove you to investigate the possibility of jointly or filing married but separated. Naturally, once the divorce is finalized, you may file as either single, head of household, or widow.
For Tax Purposes, Who Claims the Amount Paid in Spousal Support and/or Child Support?
When it comes to spousal support, the receiving partner must claim that amount as income, whereas the paying partner may deduct all payments. It is therefore a good idea to keep accurate records of all payments and avoid paying in cash. On the other hand, child support payments do not affect taxable income one way or the other.
Who Claims the Dependents?
By default, the parent who has physical custody of children is allowed to claim them on his or her taxes. That being said, parents may come up with their own arrangements. Some versions may include:
- Each parent claiming all dependents on alternating years;
- Each parent claiming one or more dependent every year;
- Evaluating the tax benefits of each parent’s claim and potentially sharing the savings.
Are Other Expenses Associated with the Divorce Deductible?
In some cases you may be able to deduct fees paid to your attorney, accountant actuary or appraiser. In each case, fees associated with tax advice related to your divorce are deductible. Additionally, some fees paid related to property settlements, such as costs associated with preparing and/or filing a deed, are deductible.
Who Pays Taxes on Shared Retirement Income?
If you are dividing retirement benefits earned by one spouse, you generally utilize a Qualified Domestic Relations Order (QDRO). This arrangement allows funds to be distributed to two different locations in two separate checks, one for each of you. If the distribution occurs in one check, the retired spouse will be responsible for all taxes on the retirement income. Continue reading →