Don’t Overlook Tax Considerations When Dividing Assets in a Divorce
When you decide to end your marriage, there are numerous concerns to think about. If you and your spouse have children, establishing appropriate custody, child support and visitation arrangements should be top priority. Whether you’re a parent or not, there are multiple financial considerations, such as the disposition of the marital home and division of assets accumulated since you wed. While you’re dealing with those issues, as well as the emotional strain associated with the breakup, it is easy to overlook the potential tax implications of your divorce.
Your marital status as of December 31 determines your filing status for the entire tax year. If your divorce is finalized by the end of the year, you must file as “single” or “head of household” (if you meet the qualifications). Someone who was still married at the end of the year can file jointly or separately, even if they break up with their spouse before the return is submitted. Filing status can significantly impact your tax liability, so it’s important to plan accordingly.
A key legal change in the last decade is the tax treatment of alimony payments. For divorces finalized after December 31, 2018, a party that pays alimony may no longer deduct that amount from the income used to calculate their tax. Likewise, spousal support is no longer considered taxable income for the recipient. In the past, some high earners were willing to be more generous with spousal support payments because of the deduction they’d receive. Don’t fall into a tax trap by negotiating based on an outdated understanding of the law.
Retirement assets amassed during a marriage are divisible in a divorce. However, certain types of accounts carry heavy taxes and penalties if they are accessed prematurely. Often, a Qualified Domestic Relations Order (QDRO) is used to distribute funds in a manner that prevents negative consequences so that assets are intact when the time comes. Additionally, selling jointly owned property, such as a home, may result in capital gains taxes, depending on the sale price and your basis in the property.
Mistakes relating to tax issues during a divorce can be costly. Consulting with a tax professional or an experienced family law attorney can help you understand the best way to approach these complex matters. The Law Office of S. Mark Mitchell, LLC offers comprehensive legal guidance on the Georgia divorce process. To discuss your particular case, please call 470-344-8550 or contact me online. My office is in Newnan.
