Divorce – More Than Just Emotionally Crippling; It Can Deliver a Financial Tax Blow

Oct 27, 2014 By Nielsen Law Group In Taxation No Comment Tags : , , , , ,

Dissolving a marriage can create a ripple of tax consequences for both spouses. Filing your tax returns after a divorce, or even a separation, may be trickier than it was when you were married. If you are considering divorce, or in the middle of divorce proceedings, there are a few major tax sticking points to be mindful of.

Spousal Support and Maintenance Payments

Spousal support and maintenance, otherwise known as alimony, can be deducted on your taxes if you are the spouse paying them. If you are receiving the payments, they are taxable gross income if:

  • They are paid in cash, meaning you must receive money and not a service in exchange for the dollar amount of the alimony owed
  • Received by or on behalf of your spouse
  • You and your spouse are not living in the same household, and
  • The payments end when the spouse that receives them dies

Child Support Payments

Child support payments are not deductible by the parent that makes the payment, and is also not considered taxable income by the parent that receives the payment.

Exemptions

One of the biggest ways to lower your tax burden is having the ability to claim exemptions for your dependents. If you qualify as head of the household, you will be able to claim all the exemptions that go along with that status. Both parents may not claim the same child as a dependent on their tax return. Usually the parent that takes on the majority of the time and expense for raising the child takes the head of household exemption. Though, if you and your spouse have more than one child, and you truly share custody, one of you may be able to claim one of the children as a dependent and your spouse can claim the other child.

Property Division

Property acquired by the spouses during their marriage generally qualifies as marital property. If a couple cannot agree as to how to split their property, they can have a court decide how to divide it. Division of property doesn’t necessarily mean a physical division. Each spouse may be awarded a percentage of the total value of the property. Property division can be a complicated process with lots of twists and turns. Seeking a qualified tax advisor to counsel you regarding all possible issues and complications is advised.

Make sure you are informed as to all the possible tax consequences relating to your divorce agreement or divorce negotiations. The professionals at Nielsen Law Group are ready to assist you. Call (480) 888-71111 or submit a web request here.