If you have filed for or are a party to a divorce proceeding, you should be prepared to address the tax implications of getting a divorce. This blog post provides a checklist of the issues you need to watch out for.
The Tax Implications of Divorce
One of the first things you need to be aware of is your filing status. As far as state and federal tax authorities are concerned, your filing status is your status as of December 31 of the tax year. If you were married at the beginning of the year, but divorced on December 31, you must file as a single taxpayer for that year. This applies even if you were married for most of the year.
If you are in the process of getting a divorce on December 31, you must file either a joint return or as married filing separately. However, if you were legally separated on the last day of the tax year, or if your spouse has not lived with you for at least six month, you can file as Head of Household.
The most significant impact of your change in filing status has to do with the withholding’s from your pay during the year. Typically, when you are married, you will have fewer taxes withheld, as you have more deductions. A late year divorce can leave you owing taxes at the end of the year.
In addition, if you were married for some portion of the year and have minor children, you must determine who will get the exemptions for the children on their tax return. For federal tax purposes, it is generally assumed that the parent with physical custody will get the exemption, in the absence of an assignment of that right. Even though a divorce order grants you the right to the exemption, if you are the non-custodial parent, you must file the appropriate form with the IRS to legally take the deduction.
A parent with physical custody is also allowed to take the child care credit for children under the age of 13. This credit, however, cannot be traded or assigned to a non-custodial parent without a specific court order.
If there is marital property that must be sold as part of the divorce settlement, there may also be tax implications. For example, any real estate that the parties sell may generate capital gains. However, changes in the laws have essentially done away with this tax, unless your gain is in excess of $250,000.
Most important, however, is that you consult with your accountant or other trusted professional
Contact the New Jersey Family Law Firm of Lyons & Associates
At Lyons & Associates, we place a premium on personal service and attention. We offer a private consultation to every new client. To schedule a meeting with an experienced New Jersey family law attorney, contact our office online or call us at 908-575-9777.