During a divorce, it is always tax time

While tax season may be half a year away, if you are thinking about a divorce or deep in the middle of the process, you should remember to always consider the tax consequence of your choices. There are many elements of a divorce that affect your taxes and many of the financial elements of your divorce should be calculated in light of how taxes will affect the actual sum you may receive.

For instance child support and alimony or spousal support. If you have to pay both of those, you will feel it in your bottom line at the end of the year, as they both will come out of your pocket. As unpleasant as paying alimony may be, it does have one positive factor. It is tax deductable for you. And you will probably pleased to know that your former spouse will have to pay taxes on the portion he or she receives.

On the other hand, child support provides neither a tax deduction for you if you are obligated to make that payment, nor does it create a tax liability for your child’s other parent. Because child support is entirely for the benefit of the child, and it is presumed by the state that you would have spent that same sum on your children if you were still married, the IRS views it as neither a gain nor a loss.

For your property settlement, you should always analyze the tax effect of any transfer of assets, and factor in the tax effect. If you have to pay a tax, whether a capital gain or ordinary income, you should know that before you make any agreements. If you are to receive $100,000, you want to ensure that you receive that amount, and not $62,000 after a 38 percent tax bill is paid.

Taxes are never pleasant, but unexpected tax liabilities after a divorce decree has been finalized by the court are even more unpleasant.

Related Posts