Be Sure to Consider the Tax Consequences of Filing for Divorce
Filing for divorce can result in dramatic changes to every aspect of your life and may require careful planning in many areas, including taxation. You may want to discuss possible tax consequences of your divorce with your attorney, and consider the following items:
Choose the most advantageous way to file your taxes
If your divorce is not final by the end of the year, you cannot file as single. You may receive the best deduction for filing jointly, but if you are concerned that your spouse might not be honest on his or her taxes, then you may wish to file married but separately, in order to avoid having to sign a joint return that isn’t accurate and could subject you to liability. If you discover only later that your spouse failed to report income or claimed improper deductions or credits, you may file for Innocent Spouse Relief, which is designed to grant relief from additional taxes for the truthful spouse.
Designate a Head of Household
Generally, the parent with custody of the child is the parent who is able to claim head of household status and receive the ensuing deduction. Where custody is split perfectly evenly, parents may wish to switch years where one parent is designated as having 51% custody, in order to trade off which parent receives the deduction. You will need to file IRS form 8332 to reassign dependent status to the non-custodial parent; this form will trump any divorce agreement between the parties for tax purposes in regards to the assignment of custody.
Child and Spousal Support are Taxed Differently
Child support is not taxable as income to the receiving parent and may not be deducted by the paying parent. Spousal support, on the other hand, is taxable as income to the recipient and deductible for the paying party. It is thus important for any support payment intended to go toward the care, schooling, or expenses associated with the child to be designated as child support and not spousal support.
When Dividing Assets, Consider Their Respective Impact on Taxes
While assets may have identical face value, they may carry very different tax considerations. Before agreeing to a division of assets—say, where your spouse gets a savings account and you get a security investment with an equivalent face value—make sure that the taxes each of you can expect to pay on those assets are accounted for when determining their value.
Ensure that you’re prepared for handling tax concerns when you go through a divorce. Speak with an accountant, and with experienced Alabama family law attorneys at The Hawkins Law Firm. With offices in Guntersville, Huntsville, and Arab, our attorneys are available to ensure that your rights and interests are protected in your divorce.