What Divorced Couples Should Know About Taxes

 Posted on November 29, 2016 in Divorce

If you are in the process of divorce, or are contemplating divorce, there are important tax considerations that must be taken into account. Specific parts of the tax code speak directly to divorce; thus, divorcing couples must consider the tax consequences with regard to the decisions being made.

Timing for Filing Status

Whether or not you are eligible to file jointly depends on your marital status. The IRS uses your official marital status as of December 31. Therefore, if your divorce is not finalized by the end of the year, you can file jointly. You may want to keep this in mind when you consider the timing of your divorce.

Dependents

If there are children from the marriage, the question of who will claim which child is typically something that is decided during divorce proceedings. To begin, you should first discuss this with your attorney before the issue arises. It may make sense for one person to claim all dependents and give up something else. Or, one parent can claim some of the children and the other parent can claim the rest.

Retirement Accounts

Several types of retirement accounts will allow you to divide some of the accumulated assets during a divorce. However, you will be subject to a tax penalty if you do not do this properly, and if you do not file the required documents. An improper division of these assets could result in massive tax penalties. Therefore, make sure to file a qualified domestic relations order if applicable, or comply with other requirements to incur the least number of fees, penalties, or taxes.

Sales at Dissolution

Assets are often sold during a divorce; however, you need to be careful if an asset has appreciated in value from the time you bought it—you may owe taxes on the appreciation. The person awarded the money from the sale of the asset may be responsible for the taxes, or a separate arrangement can be made—do not forget to factor this into the property settlement agreement.

Transfers at Divorce

Former spouses can generally transfer assets to each other pursuant to a divorce without any tax consequences. Still, you will want to work with a qualified divorce attorney to make sure that everything is done properly and there are no unexpected taxes levied.

Contact Our DuPage County Divorce Attorneys Today

If you are thinking about divorce or in the process of divorce, you should work with a knowledgeable divorce attorney to ensure that all tax ramifications are understood. Our skilled DuPage County divorce attorneys at Davi Law Group, LLC will look out for your best interests when making decisions about your situation.

Source:

http://www.journalofaccountancy.com/issues/2013/apr/20126248.html