In addition to the obvious emotional upheaval, divorce also raises many tax issues. Divorce can impact the tax consequences for a couple’s assets when distributing their property. Divorce also affects tax issues regarding dependents and child support. Moreover, the divorcing couple will need to determine if they will file their tax return jointly or separately, affecting their tax rates and standard deduction amounts, as well as their eligibility for any tax benefits. Because each couple’s financial situation is different, the decision of whether to file jointly or separately must be made on a case-by-case basis.
Division of Assets Have Tax Consequences for Each Spouse
When the division of property is determined in a divorce settlement, more than the overall worth of the property should be considered. The tax consequences are a serious and often complicated consideration. For example, a retirement account awarded in a divorce could have sizeable tax implications when the tax deferred money is distributed.
The biggest asset a married couple usually has is their house. Depending on how ownership of the house is determined during the settlement, each spouse’s taxes may be affected in different ways. Generally, both parties may reap a greater tax break if they sell the house together, rather than if one spouse sells the home alone after thedivorce. There may also be tax implications if both parties decide to co-own the home after the divorce. In this case, there could be negative tax consequences for the spouse not residing in the house if it is sold at a later date.
Child Support, Alimony & Claiming Dependents Are Serious Tax Issues for Divorced Couples
It is important to keep precise records of all alimony payments because of the potential tax consequences and tax benefits. Usually, the person who pays out the alimony can claim the alimony as a tax deduction. Conversely, the person receiving the alimony must file it as taxable income. Child support payments cannot be claimed as a tax deduction. Moreover, the custodial parent receiving the support on behalf of the child is not able to claim the monies as taxable income.
In the world of taxes, listing a dependent has certain benefits associated with lowering one’s taxable income. Claiming a dependent may reduce a person’s tax burden significantly if they meet certain IRS eligibility requirements. Dependent status, and which parent gets to claim the child as a dependent, may be altered by a divorce. There are also considerations for the child care credit and medical deductions to be determined.
For most taxpaying citizens, if you provide the majority of the support for the dependent, you can claim them as such and are entitled to the coordinating tax break. This is not always the case when there is a divorce. Often the custodial parent is the person entitled to the tax benefits associated with dependent status of the child even though the non-custodial parent is making child support payments.
There are several solutions for determining dependent status, such as parents trading off: one parent claiming the child one year, the other parent the next. Another model is for the parent earning a higher income to claim the child as a dependent in order to reap the tax benefit and then compensate the other parent in some other way. These are complicated tax matters potentially intertwined with complex divorce andfamily law issues that warrant serious discussions with an experienced divorce attorney in conjunction with a tax professional.
New Jersey Divorce Attorney Helps Divorcing Couples Determine Best Tax Solutions
Chairman of Cooper Levenson’s Family Law Practice Group, and his team of Cherry Hill divorce attorneys have represented thousands of clients going through divorces in New Jersey. The complex tax issues associated with divorce and can help you navigate this difficult territory with proficiency and compassion. With his law offices conveniently located in Cherry Hill, South Jersey, Represents clients in Family Courts throughout the state, including in Camden County, Burlington County, Gloucester County, Cumberland County, Salem County, Atlantic Countyand Cape May County. For more information about divorce in New Jersey, call our office today at 856-857-5526 or contact us online to schedule an appointment.