For many people, divorce is an inconvenient and uncomfortable obstacle to work through. Some people may be interested in concluding the divorce as soon as possible so they’re able to move on with their life, and some people are still holding on to their marriage in hopes of resolving everything and retaining partnership. Regardless of the specific details of the case, it is important that you understand the potential setbacks that have been known to occur during the divorce process.
With anything that involves legal professionals, fees and taxes are included and inevitable. More often than you may think, tax issues occur during divorce processes from reasons such as poor and inexperienced legal preparation, poor communication between all parties involved, and the lack of mutual negotiation.
Typically, taxation issues are approached with the mutual goal of preserving as much of a marital estate as possible while also paying the least amount on legal fees as possible. The more money saved from taxes and court costs, the more money will be left to divide at the conclusion of the divorce. Along with that, the more income and assets each party has when entering a divorce, the better prepared each party will be after they part ways. Children will also benefit and receive optimal support after the divorce also, which is worth taking note of.
Common Tax Issues During a Divorce
In case you didn’t know, tax rates vary in the first year of divorce. That said, it is not uncommon for divorced couples to fail to consider the fact that starting the first year of their divorce, they’re unable to file “Married Filing Jointly”. As much as divorced parties don’t want to hear it, they’re now unable to reap the tax benefits of marriage. As a result of this, they may experience an increase of tax liabilities for each sperate household for several reasons including:
Alimony can have serious tax consequences in a divorce, and, with that being said, you or your spouse may be required to pay additional taxes on alimony payments as long as alimony is included in the settlement. In most cases, alimony payments are taxable as regular income to the recipient and tax-deductible to the alimony payer. Along with that, each party is required to agree in their contract that each alimony payment is not to be taxable to the recipient and, at the same token, is not tax deductible to the payer.
In the case that alimony outweighs potential tax savings, each party may be able to negotiate details that would result in full values being paid rather than taxed values. Along with that, some parties opt to pay alimony in one lump sum at the time of separation and agree that one party obtains a greater portion of marital assets in property distribution as well as other forms of distribution.
Selling or relocating out of your previous home may result in an updated key tax shelter. With this in mind, you can expect an additional mortgage interest, real estate tax, and moving costs. Generally, if one party purchases the other party out of their marital home, that purchasing party will be rewarded the benefit of keeping the tax shelters moving forward. In the case that the other party is unable to purchase another home, they would lose out on the ability to keep the already-existing tax shelters moving forward.
If each party is living together in the home pending the completion of their divorce, they’re able to agree to split all mortgage interest and taxes paid up until the date that one party relocates from the home ultimately. In this regard, it’s imperative that there is a well-defined and specific ‘move out’ date in the divorce agreement. Another alternative worth exploring is the option to split all mortgage interest and property taxes paid on the home up until it is sold. This will provide each party with an additional itemized deduction on their individual return, lowering their tax liability.
If you’ve been deducting any or all of your children as dependents, realize that each party will likely lose the opportunity to do so moving forward. Dependant-related details can quickly become ambiguous and complicated if each party plans to receive a tax benefit from claiming one or more children and they’re not phased out of the child tax credit due to high income, if a newly-divorced couple has an odd number of children and each party is open to splitting the children equally, or, in the case that a party has an only child, they plan to alternate primary custody year-to-year.
Greenville NC Divorce Attorneys – Irons & Irons, PA
If you are considering or believe you are ready to move forward with a divorce in Pitt County, please contact the divorce attorneys at Irons & Irons today. They are committed to helping people obtain the divorce agreement they deserve while helping to build a better future for their clients and their clients’ families. To schedule an initial consultation, please contact Irons & Irons today by calling (252) 215-3000. Protecting your Privacy ~ Your privacy is our primary concern. At Irons & Irons, we understand the importance of protecting your privacy and will never share your contact information with a 3rd party.