Tax Implications of Getting a Divorce_ What You Need To Know

Divorce is a difficult and emotionally trying process, but one that often needs to be faced at some point. Because of this, it is important to understand the potential tax implications in order to make the best decisions.

First and foremost, it’s important to remember that the dissolution of a marriage can cause changes in tax filing status from jointly-filed returns with your spouse to separate filings. It may also affect other aspects such as child tax credits, standard deductions, and other deductions you may be eligible for.

One important factor to consider is how the divorce will impact alimony payments. In general, alimony payments are taxable income for the payee and deductible for the party making the payments. It’s best practice to obtain an order from a court or written agreement that outlines what type of support is being provided and how much. To be considered alimony they must satisfy three conditions: they are paid in cash, they must be received by (or on behalf of) a spouse or former spouse under the terms of a divorce or separation instrument, and there must not be any liability after death of the recipient spouse or former spouse.

Child support payments are not subject to taxation; however they are also not tax deductible. One exception would be if compensation by way of “unallocated” family support occurs which includes a combination of both child support and spousal/partner support stated in one payment amount. Unallocated family support is considered taxable income for the receiving parent so tax filings should reflect those amounts accordingly. The paying parent does not receive any deduction for unallocated family support payments nor do these payments qualify for childcare credit or head of household filing status purposes; consequently only basic allowances should be claimed when ready filing return documents each year.

The division of assets such as retirement accounts, real estate, stocks/bonds & savings account balances can also have significant tax implications depending on how assets are divided up during divorce proceedings & how funds are transferred between parties once finalized orders have been signed off by state courts systems where applicable. If assets such as IRAs or 401 K plans transfer as part of decree signing processes then distributions & transfers could cause taxable events due– resulting in possible penalties levied against both receivers & givers alike depending on who holds title & gains ownership rights post settlement proceedings take place (if applicable).

In all cases it’s recommended you consult with knowledgeable Anniston divorce attorney that is familiar with pertinent state laws governing prevalence related topics involving divorces along with qualified professionals like CPAs who specialize in providing financial/tax advice tied into marital dissolutions as unforeseen issues can arise depending upon unique circumstances.

Overall it pays dividends when preparing taxes associated with divorces remain updated regarding new statutes & regulations tied into these types¬ just situations beforehand– minimizing potentially costly errors down road prior filing deadlines arrive in conjunction with looming fiscal years ahead!