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Taxes on Individuals & Families

Don't Forget Taxes in a Divorce

Alot goes through your mind during a divorce.  A Divorce can be an emotionally draining process.  One often overlooked area is taxes.  If you are in the middle of a divorce or just thinking about it, you need to be careful.  Divorce has serious tax implications, and the choices you make now may affect you for many years.

Alot goes through your mind during a divorce.  A Divorce can be an emotionally draining process.  One often overlooked area is taxes.  If you are in the middle of a divorce or just thinking about it, you need to be careful.  Divorce has serious tax implications, and the choices you make now may affect you for many years.  Consider the following:

  • Alimony.  Alimony is tax-deductible if you pay alimony and taxable income if you receive it.  
  • Child support. On the other hand, child support is neither tax-deductible nor is it taxable as income.
  • Exemptions - Children.  If you are awarded physical custody of your child, you will usually be entitled to the tax benefits related to that child.  If you share custody, special rules apply that are too detailed to go into here. Consult your Dugan & Lopatka CPA for more information.  
  • Exemptions - Other.  In addition to a $4,000 dependency tax deduction, tax benefits may include the dependent care credit, the child tax credit, the earned income credit, and education tax credits. You can transfer your right to claim your child to your former spouse each year, for tax purposes, by signing a special IRS form.
  • Retirement accounts and IRAs. If you have a retirement account or IRA, your former spouse may be awarded part of of it. But unless the accounts are divided and transferred properly, you could end up paying the tax on all of it.  
  • Property settlements. You are allowed to transfer property (house, cars, investments, etc.) to your ex-spouse without triggering income tax, if it's part of your settlement agreement. But whoever ends up with your marital assets may owe taxes when the assets are sold.  Be sure to take future taxes into consideration during your negotiations, or you might end up with large and unexpected tax liabilities.

Dugan & Lopatka is here to help you.  Call us early in the divorce process, and let us help you and your attorney make informed choices.

 

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