Tax Tips For Divorce
A divorce can change nearly every aspect of life as you know it, including your taxes. It is important to have a knowledgeable advocate on your side during divorce proceedings to help ensure that you do not find yourself paying any more to the IRS than you have to. Below are five divorce tax tips.
At my Fort Worth law firm—Law Office of V. Wayne Ward—I will thoroughly review your situation and provide you with advice tailored to fit your unique circumstances. Regardless of your marital assets, tax considerations are an important aspect to keep in mind when working on a divorce agreement.
Common Tax Considerations In Divorce Matters
While a number of tax implications should be considered in any type of divorce, the following are five tax tips for divorce that every couple should be aware of.
- You can still file taxes jointly in the year you are divorced. If you are separated from your spouse, but do not have a divorce decree or an alimony order in place, the IRS will still consider you to be married for tax purposes. This is true even if you are officially divorced in January. Whether it makes sense to file jointly or separately depends on the specifics of your situation, but for many couples, a joint filing can help them save some tax dollars, particularly if a home needs to be sold as part of the divorce agreement.
- The dependency exemption can have huge tax savings. Every parent knows that claiming their children as dependents can result in significant tax savings, but what happens when one parent is granted custody in a divorce case? The presumption by the IRS is that the parent who has custody of a child for the greater part of a calendar year is the custodial parent, and he or she can claim the dependency exemption. But, exceptions can be made.
The custodial parent can make a written declaration that he or she will not claim the child as a dependent. The noncustodial parent can then attach this declaration to his or her tax return to claim the dependency exemption. I can help determine if an exception should be sought as part of your divorce negotiations.
- Spousal support / alimony and taxes. Spousal support and alimony payments can raise several tax issues. A couple cannot file a joint tax return in the year that alimony payments begin. This is an exception to the first tax tip above. Also, the general rule is that the person who is tasked with paying alimony can make a tax deduction while the person who is receiving alimony must pay income tax on these payments. As always, certain exceptions can apply.
It is important to note that in Texas the terms alimony and spousal support are not interchangeable. Alimony payments are governed by the federal Internal Revenue Code, which sets out the law regarding deductions and taxation of alimony payments. Spousal support payments fall under Texas law, and are neither deductible nor reportable as income for tax purposes.
In every case, it is important to take into account the tax issues to help determine the true cost of what you are paying or receiving.
- Tax considerations when dividing retirement benefits. In general, when pensions and other retirement benefits are divided, the person who receives payments under a divorce agreement will be taxed on the amount of income he or she receives. Taxes can quickly eat into these payments, which is why it is important to discuss the tax consequences with your lawyer before signing off on an agreement regarding the division of retirement benefits.
- You may be able to deduct some legal fees. You cannot deduct general legal fees when it comes to divorce proceedings, but you may be able to deduct legal fees related to receiving tax advice from your attorney. Ensure that your billable time is logged accurately so you will know what to include on your tax return.
Contact Our Attorney For Help With Tax-Related Divorce Issues
Tax issues can impact your divorce settlement significantly. Make sure you have a skilled legal advocate in your corner. Call me, Fort Worth divorce lawyer Wayne Ward, at 817-789-4436 or contact me online to schedule an initial consultation at my Fort Worth law firm.
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