Although all divorces are bound by the same laws under the Illinois Marriage and Dissolution of Marriage Act (IMDMA), those with a high net worth divorce often experience an added layer of complexity. This can be especially true in regards to tax implications, which can financially wipe out both parties if they are not careful. Learn what you need to know about tax implications in your high asset divorce and how you can protect yourself in the months to come.
Financial Support: Alimony vs. Child Support
Oftentimes, high asset divorces result in an alimony (or spousal maintenance) payment for lesser-earning or earning-impaired spouses. Those with children may also receive child support payments. Both are forms of financial support, but each works differently under tax laws. Whereas child support is not taxed or taxable, alimony payments are the opposite. It is important that you understand these differences and how they may impact your finances.
Filing Your Taxes After Divorce
During the last year of your divorce, you and your ex may have three options for filing you taxes: (1) joint filing together, (2) joint filing separately, or (3) filing as a single, head of household. While it may be tempting to avoid further contact with your ex and simply file single or separated, there are significant tax breaks for married couples with a high net worth that file together. However, to receive this tax break, you must both be willing to file as married. Careful consideration must be given to determine which option is appropriate for your situation.
In addition, you and your ex must set some clear guidelines regarding the dependent exemptions for any mutual children in the coming years. Only one of you can claim a child each year, and that can significantly impact the return of both parties. However, in some instances, one party may make too much to qualify for the credit. If the ineligible party then claims the child, the credit is lost. Understanding the tax laws regarding dependents, and how they apply to your divorce, is absolutely essential.
If you are planning on filing for divorce and need assistance with the valuation of property, division of assets, and the tax implications, Weiss-Kunz & Oliver, LLC can help. Highly skilled in a wide range of family law matters, we can help protect your financial future, work to ensure an equitable settlement, and advocate for your rights. Schedule your initial consultation with our Elmhurst high asset divorce attorneys to learn more. Call us at 312-605-4041 today.