Excellence In Divorce And Tax-Related Matters

You would want to avoid entering the divorce process blindsided by potential tax penalties that may adversely affect your economic circumstance. Federal tax policies can be complex, and they change constantly. Divorce is expensive enough; you should understand how taxes can work in your favor or against it.

Does it matter if you have custody of the child?

Because the tax and divorce laws have changed over the years, child custody may not significantly impact taxes. But if you can maintain sole physical custody of the children, this may benefit your income tax return payments. You may be able to receive tax credits because your children appear as your dependents on your tax return. There may be a way to increase the tax credit contingent on who will claim the children. You may want to negotiate with your spouse and share the tax credit.

What are the taxes involved in property division?

In an equitable distribution state like Florida, the division of marital property should be fair and beneficial to both parties. Properties have different appraisal and market values. Other properties may even have income potential. The kind of property you obtain in the divorce and how you acquired ownership may present tax problems in the future. You could also use certain property and assets to create a tax advantage.

After a divorce, either or both spouses may still have to make mortgage interest payments even though only one keeps the home. While married, you could deduct these payments from your income tax. There is also a chance the spouse that the spouse who keeps the marital residence can deduct the mortgage interest from their annual tax return. However, the current tax laws have reduced the amount deductible, so ownership may also cause a financial burden.

Did you know that retirement plans are part of marital property?

In a divorce, you may face tax penalties when transferring nonliquid assets such as individual retirement accounts (IRAs), 401(k)s, pensions and other stock options. Spouses can claim a percentage of the other spouse’s retirement plans and pension when they marry, using a qualified domestic relations order to avoid the enormous tax penalties. The divorce may change this if either of you wishes to roll over the funds to your own accounts.

Tax complications increase with the number of marital properties and assets you will divide, transfer or sell. Try to find ways to minimize taxes on your divorce settlement.