Divorce and taxes are two topics that few people like thinking about, much less reading about. In fact, many people depend on professional tax preparers or spouses to prepare their taxes and don’t give it very much thought. Nevertheless, if you are considering a divorce, it is very important to start thinking about taxes and to understand that there are significant tax consequences to consider.
- When you become divorced, your tax filing status options change. Therefore, you should speak with a tax professional to consider the financial implications of filing as single, married, or head of household. For example, you can still file as married for a tax year so long as your divorce was not finalized as of December 31st of that year. Otherwise, you are considered divorced for the calendar year and cannot file as married. Some couples agree to postpone finalizing their divorce in order to reap tax benefits of filing jointly.
- The transfer of property between spouses based on an equitable distribution order or property settlement agreement is not considered a gain or a loss when it is “incident to divorce.” However, there are significant tax consequences for selling property, both before the divorce is finalized and after. This includes becoming responsible for paying taxes on gains or losses from the sale of the property.
- The sale of your primary residence can be an enormous tax benefit depending on your marital tax status. If you are still legally married and sell the home prior to December 31st, you are entitled to claim an exemption from the capital gains tax for up to $500,000. If you are legally divorced prior to December 31st, you can cannot file as married and can only claim a $250,000 exemption.
- Alimony has tax implications, while child support does not. When it comes to your tax return, it is important to understand that receiving alimony constitutes income, while paying alimony is a deductible expense. In contrast, the receipt and payment of child support are not considered income or an expense for tax purposes. Further, there are specific requirements that payments must meet to be considered alimony by the IRS.
Contact New Direction Family Law
If you are considering a divorce, contact New Direction Family Law. You have significant legal rights regarding marital property, alimony, child custody, and child support. We understand the importance of preserving and advocating for those rights and will make sure that your voice is heard. Call New Direction Family Law today at (919) 719-3470 to set up an initial consultation or visit us at our website.
Sarah J. Hink
New Direction Family Law