What Considerations Should You Make Regarding Taxes During Your Divorce?
Whether an individual is in the middle of a divorce or considering filing for one, there are some considerations he or she should make regarding taxes. Considering the importance of tax season, now is a great time to learn more about tax issues and what potential pitfalls individuals can face.
Property Settlements and Hidden Taxes
Transferring assets between spouses during a divorce often carries no tax consequences for either party. However, depending on the basis that is invested in certain assets, there could be hidden tax consequences associated with selling that asset. Some assets that may have hidden tax consequences include investment holdings, real estate, and business interests. The tax consequences associated with these assets may end up reducing the value of the assets that appear to be worth more.
Distributing Dependency Exemptions
The IRS states that a parent who is primarily in charge of parenting a child has the right to claim that child as a dependent on his or her tax return. There is one exception to this rule, however, which is when the child’s custodial parent allocates dependency of the child to the non-custodial parent in a written document. The distribution of these exemptions and any corresponding value needs to be addressed in the divorce decree, and the value should be considered in the overall value of income between the spouses.
Filing Status Post-Divorce
Individuals are not able to file their taxes jointly for the year they get divorced. If the divorce occurs at the end of the year, it is important for both individuals to adjust their withholdings to account for the change in their filing status. If the divorce occurs earlier in the year, however, there may be no large impact on how the individuals file their taxes. The change in filing status should be considered part of the overall resolution of the divorce.
Taxability of Maintenance
In general, maintenance is taxable for the recipient and deductible for the individual making the payments. This only changes when both parties agree to change the deductibility or taxability of these payments. Unless both parties have agreed to change the taxability of maintenance payments, the individual receiving these payments should estimate tax payments and put that money aside for the income tax he or she will ultimately owe.
Taking these considerations into account can help divorcing couples minimize the potential pitfalls they may face when filing their taxes. Additionally, both parties should discuss it with their divorce lawyers as well as their financial advisors regarding which tax implications may or may not apply to them.
When my ex-wife and I divorced, she took me to the cleaners. Her income is 4x what mine is, so she was able to afford an attorney while it wasn’t even an option for me, as I could barely keep a roof over my head. Together she and her attorney were able to mislead and coerce me into signing an agreement that is absolutely unconscionable. This year, I have had the kids 57% of the time, to her 43%. She earns 4x what I do. Still, she got to claim the kids on taxes, got stimulus checks for both kids, bought a new car, bought a boat and trailer and has been on seven beach vacations. Meanwhile, I lost my job (which I barely survived on, to begin with) because of the pandemic. I was evicted and lost my home in May. Unemployment is less than minimum wage in Alabama and I have filled out over 400 applications to no avail. I can’t even claim the kids for SNAP benefits, because my ex is using them to get Pandemic EBT, despite the fact that I have them (and feed them) the majority of the time. I’m on the verge of being evicted again while she is living like a Kardashian. She lied on her income statement/affidavit and since she owns her own business, has been able to hide and manipulate her earnings to qualify for government programs. I haven’t had my blood pressure meds in over two months because I can afford to get the meds OR feed my kids. I NEED HELP.