Divorce can affect your taxes to a great extent. During the litigation period, do not get too wrapped up in the emotional effects of divorce as to stop communicating with your spouse altogether.
Divorce and Taxes
Filing separate tax returns will result in benefiting the government. However, filing of separate tax returns before you are legally separated or divorced, may also prove profitable for you as IRS might not file a claim of any unpaid taxes on you for your spouse’s actions and omissions. IRS can claim 100% of the short fall in payment of taxes, in case of a joint tax return.
Taxes and Divorce Related Issues (Child Support and Alimony)
Taxes and Child Support
For the Recipient (ex-spouse) – Child Support is a tax free income
For the Payer – Child Support is a non-deductible income
Taxes and Alimony
For the Recipient – Alimony is a taxable income
For the Payer – Alimony is a tax deductible income
In case you have children, you can negotiate for “dependent’s exemption” for as many as the children supported by you.
Transfer of Property after Divorce and Taxes
Gift tax may be charged from the spouse in whose name the portion of property is being transferred. According to the recent changes in capital gain laws, it is doubtful that capital gain tax would be charged. However, you are advised to contact your tax lawyer for guidance.
Cost of Litigation Fee - for Proceedings of Divorce and Taxes
Cost of divorce i.e.: litigation fee and,
lawyer’s fee are not subject to deduction, however cost of tax advice given by accountants, actuaries etc may be deductible.
