Tax Consequences of Divorce

Going through a divorce can be difficult enough in and of itself. To know that you also need to be looking ahead to post-divorce life in order to best protect yourself and your well-being as you start off on a new chapter in your life can be overwhelming. One of the considerations you should be keeping in mind as you navigate the divorce process is that there can be significant tax consequences of divorce. These consequences can include far-reaching impacts on your financial well-being and so you should take care to consider the tax consequences of your divorce agreement.

Tax Consequences of Divorce

One significant and immediate impact of divorce is the fact that, starting in the first year post-divorce, you will no longer be able to file your taxes as “Married Filing Jointly.” Filing like this during your marriage may have minimized your tax burden. Be prepared to lose some of the benefits associated with this filing after your divorce, especially considering there may be other reasons your tax liability will increase.

Depending on who has primary custody of children after divorce, you may also lose the ability to deduct your children as dependents. Generally speaking, the parent with primary custody has the right to claim the children as deductions for tax purposes. Sometimes, however, the other parent may be able to get this deduction. This can be particularly true in cases where the primary custody has low tax liability resulting from little to no income.

There are also several tax consequences of alimony to consider. The tax treatment of alimony has significantly changed over the past few years. Pursuant to the Tax Cuts and Jobs Act of 2017, alimony that is paid upon a divorce filed after January 1, 2019, is no longer considered to be taxable income to the receiving spouse. On the flip side is also the fact that the paying spouse is no longer able to deduct alimony payments and receive resulting tax savings.

Property issues incident to divorce can also have profound impacts on tax liability. For instance, moving out of the marital home or selling the marital home can impact tax shelters such as real estate taxes and mortgage interest deductions. Should one spouse buy out the other spouse’s interest in the marital home, the purchasing spouse will usually be able to retain the benefit of these tax shelters. The other spouse, however, will lose the benefit if he or she is unable to purchase another home.

Liquidation of assets upon a divorce may also have tax consequences as well as the transfer of marital property. Non-liquid assets, such as pensions, 401(k)s, IRAs, and other non-liquid assets may have tax consequences upon transfer in divorce. Some non-liquid assets, however, can be transferred while avoiding these tax consequences but will require a Qualified Domestic Relations Oder (QDRO). The Employee Retirement Income Security Act (ERISA) provides that the withdrawal of retirement funds in divorce can generally only be obtained penalty-free through the use of a QDRO.

Family Law Attorneys

At Navarrete & Schwartz, we want to help you through the divorce process and protect your best interests so that your financial well-being is protected far and away after the final divorce documents have been signed. We are proud to serve the residents of Midland, Texas. Contact us today.

from Texas Bar Today https://ift.tt/3iKdzlo
via Abogado Aly Website