The end of a marriage requires attention to many logistic issues. These issues include where to a get a new home, whether to choose a new career, and how the children’s time will be divided. When making a decision about whether to come to an agreement with the other party, these issues will come into play in a myriad of ways. One other essential issue to consider is the impact that taxes will have on your divorce and your future.
Spousal maintenance is one area that will be effected by tax considerations in a divorce. In the past, spouse maintenance payments were deductible to the spouse paying the maintenance, and taxable as income to the spouse receiving spousal maintenance. However, the Tax Cuts and Jobs Act that was passed in late 2017 and took effect in 2018 changed this. According to the new law, the paying spouse can no longer deduct the spousal maintenance payments on his or her federal income tax returns. Moreover, the payments are no longer taxable as income to the receiving spouse. This should be a major consideration to anyone considering agreeing to spousal maintenance in their divorce. As an alternative, the parties may want to consider having an agreement that includes a larger property settlement for the receiving party.
Another tax consideration in divorce is the tax deduction for the parties’ children. The standard deduction that may be taken for the children on federal taxes can add up to a significant amount for the parent claiming the child or children on their taxes. Parents often agree that they will either alternate taking the deduction, or in cases where there are multiple children, the parents may agree that each parent may claim particular children every year. Before agreeing to any of these options, the parties need to examine the type of benefit that each parent would receive from claiming the benefit. If one parent has very little or even no income, he or she may not benefit as much from claiming the deduction as the other parent.
Finally, if the parties are selling a home, the parties need to examine whether such a sale would expose them to capital gains taxes. These taxes can be substantial, and there can be other ways to reduce the parties’ tax liability.
Divorce and taxes interact in complicated ways. We have experience helping our clients with these issues. Call us today at (320) 299-4249 let us help you.