Going through a divorce can be emotionally exhausting. It can also lead to major financial hits if you do not plan carefully. Now that tax season is upon us, many divorced individuals and couples going through a divorce have questions about the impact while filing a tax return. There are new laws to consider that have gone into effect.
The team at the Law Office of Karen S. Brown would like to cover some of the basics regarding divorce proceedings and your taxes. During a consultation at our Los Angeles, CA family law office, we can discuss your own situation and what would be best given your case.
This depends. Couples who are ending their marriage but have not had their divorce finalized by December 31, 2018 can choose to file a joint return or file separate tax returns. This must be discussed with your former spouse.
If you are unable to file a joint tax return because you finalized your divorce by the end of 2018, you can potentially file a return as the head of a household if you have had a dependent living with you for half of the year and you have paid more than half of the upkeep costs on your home. Doing this can increase your standard deduction and change the tax bracket that you fall under.
If you are the custodial parent of your child/children, you will be able to claim them as dependents on your tax return. The custodial parent is the parent that the child has lived with for the majority of a year.
It is possible for a non-custodial parent to claim a child as their dependent, but it requires the custodial parent to sign a waiver that they will not do so on their own tax return.
This is where new changes in tax law will have major impacts on taxable income and deductible payments regarding alimony.
As of now, alimony payments are no longer tax deductible, and any alimony received is no longer counted as taxable income. This could make major differences in high-income divorces and establishing alimony arrangements in general.
As for child support, child support payments were never considered tax deductible, nor were they considered taxable income. Tax laws regarding child support have not changed.
Many couples who divorce wind up selling their martial home. It’s possible that the profit made on selling a martial home could result in paying capital gains taxes. That said, it is possible to exclude a certain amount of profits made on the sale of a martial home depending on the situation.
Retirement accounts are another major consideration when it comes to divorce, particularly pensions, which will be paid out at a later date. This is when a qualified domestic relations order (QDRO) may be issued, specifying to pension administrators that a certain amount in payments will be made to a former spouse.
Additional considerations will be made regarding other retirement plans and accounts in order to minimize tax penalties.
As you can see, a divorce can affect numerous aspects of your financial future as well as present concerns. With that in mind, it’s crucial that you work with a skilled divorce lawyer. They can offer insight into your financial needs and help you make the most sound choices that will avoid excessive taxes and fees, and help you have a better grasp on your financial future following the end of your marriage.
To learn more about your legal rights and options as you are ending your marriage, be sure to contact an experienced divorce lawyer and family law attorney. We at the Law Office of Karen S. Brown are here to help. You can reach our office by phone at (323) 766-6426.