When you are going though a divorce, there are a lot of things to think about. However, one matter that is often overlooked is the impact that a divorce will have on your taxes. While this certainly should not be the primary thing that you are focused on during this difficult season in your life, if you ignore it altogether it could be a very costly mistake.
Filing Status
Perhaps the most obvious change is that when filing a tax return, instead of checking the box for married and filing jointly, your status has changed. You now must file as “single” or “head of household.” This can have an impact on the tax bracket that you are in and how much you pay in taxes.
Head of the Household
After a divorce, only one parent may be able to claim “head of household” status—depending upon what his/her facts are following the divorce. This is highly disputed in many divorces because the head of household typically gets a higher standard deduction and a more generous tax bracket. There are some stipulations, such as having a “qualifying child” who lived with you for more than 6 months out of the year. If you have questions about who can be head of household, talk to an attorney you can trust.
Dependents
It is generally assumed that the parent with custody gets to claim the children as dependents when filing taxes. However, it does not have to be that way. Often the parent with the higher income gets a better tax break by claiming dependents, so it is decided to let that spouse claim their dependents. Sometimes parents work out a deal to split the exemptions between the two of them if they have two or more children.
New laws connected with the Affordable Care Act, may also affect the taking of dependency exemptions.
Support
Contrary to one popular belief, child support payments are not tax deductible. However, if you are paying spousal support payments, in the form of alimony, those are deductible. The spouse receiving alimony payments must pay taxes on those payments as they are considered taxable income.
The Great Divide
Part of the divorce process is dividing property and deciding who gets to keep what. Some assets come with tax breaks, while other property brings with it a tax liability. Considering the tax ramifications when dividing property can save you a lot trouble and a lot of money come tax time.
Tax Return
Sometimes a divorce isn’t final before the end of the calendar year, and the couple getting divorced is expecting a tax refund. How the tax refund is to be divided is certainly something that should be taken into account when settling the divorce.
If you or someone you know is going through a divorce, don’t try to go through it alone. Get an attorney that you can trust who is looking out for the best interests of you and your family. At the law offices of William L. Geary, we have over 30 years of experience in family law cases, so we have the knowledge needed to help keep you from getting buried in taxes after your divorce. To schedule a consultation, contact us today.