How Will Divorce Impact Your Taxes?
Divorce is a major financial transaction. As such, it can have serious tax implications, including some pitfalls we can help you avoid.
In addition to the immediate tax implications of divorce, there are longer term impacts involving taxes and divorce.
Who Gets To Claim Tax Exemptions For The Children?
Short-term considerations may include the agreements relating to claiming tax exemptions for the children. Exemption for dependents can be one of those emotional issues that is not worth debating in the big picture. It may make more sense for the parent with little or no income, for example, to sacrifice the exemption to a parent for whom it will be meaningful, conditional on support obligations. Creative negotiation can be useful in this case.
Make Sure You Are Able To Deduct Your Alimony Payments
Alimony is tax-deductible by the payer and child support is not. Similarly, alimony is taxable to the receiver, while child support is not. In some situations, alimony may bump the receiver into a higher tax bracket. Such shorter term tax implications need to be accounted for when considering the immediate financial impact of your divorce.
Be Aware Of Tax Implications When Dividing Complex Assets
Divorcing couples with significant assets need to be acutely aware of the potential tax implications involved in dividing investments and property. Division of assets like 401(k)s, IRAs, fixed, variable and joint annuities, and pensions through employment (government teacher’s and military pensions) require careful attention.
One spouse may not want to settle for the house in exchange for the retirement account, for instance, when the long-term implications are made clear. The same goes for the division of business assets.
Careful tax planning is imperative, and cooperation may be beneficial for both parties.
We Work Hand In Hand With Financial Experts
We are not tax advisers, so we do not fail to enlist the support of professionals. We work hand in hand with tax advisers and financial experts on a daily basis when negotiating divorce agreements. With careful planning, our goal is to ensure that the settlement protects our client’s tax interests and preserves the wealth that you’re taking out of the marriage for the future.
In addition to working carefully with financial experts, we focus on making clear our strategy, agreeing on goals and valuation methods, and getting you the best outcome possible.