Elmhurst Divorce Lawyers for Tax Considerations

Tax Implications of Divorce

Since you and your ex-spouse will no longer be married, you must file taxes separately following your divorce. However, if you were still legally married as of December 31 of the previous year, you are allowed to file taxes jointly for that year. Doing so can offer some financial advantages, but you will want to make sure the two of you agree on how to divide any tax refunds or who is responsible for paying any taxes owed.

During the divorce process, you may need to address a variety of tax-related issues, including:

• Deductions and exemptions - If you and your spouse share children, only one of you will be able to claim them as dependents per year. In many cases, the parent with the majority of the parenting time (known as the custodial parent) will claim the child(ren), although you may reach an agreement in which each parent claims one child or parents alternate in claiming dependents each year. A custodial parent may also be able to realize other tax benefits related to children, such as tax credits for child care expenses. We can help you explore these options.
• Property division - When dividing marital assets, you and your ex-spouse may transfer monetary funds or other property to each other, and taxes will not apply to these transfers incident to a divorce. However, the division of assets may have other tax implications. For instance, if the marital home or other assets are liquidated during divorce, capital gains taxes may be owed. If one spouse will continue to own the family home or other real estate property, he or she will be required to pay property taxes. When dividing retirement accounts or pensions, taxes may be owed on funds that are withdrawn, although penalties can usually be avoided by using a Qualified Domestic Relations Order (QDRO). We understand the various tax ramifications of your divorce, and we will help you navigate these issues.
• Financial support - If spousal maintenance (also known as alimony) is awarded to one spouse, or if a parent is required to pay child support, income taxes will apply to the payor's income before payments are deducted. The recipient of support payments will not be required to pay taxes on these amounts.
• Business interests and investments - If either spouse is a business owner, the profits earned by the business may be taxed as part of his or her personal income. Spouses will want to understand how these taxes will affect income for purposes of calculating support and dividing property. In addition, a business or other investments may have untaxed gains or losses from previous years that will be carried forward. These can represent significant assets or liabilities, and they will need to be factored into the divorce settlement. Finding money hidden in a business that has already been taxed during the marriage is another specialty of Weiss-Kunz & Oliver, LLC.