Divorce and Taxes: Tips for Those Contemplating Divorce

Tax season is now descending upon all of us and for individuals either planning to file for divorce, or those who are presently in the midst of divorce litigation, understanding how your current marital status can impact your tax liability is of significant importance. While each individual’s specific circumstances are unique, this article intends to provide general guidance to assist you in your decisions. By highlighting several areas where Divorce and Tax Law intersect you can make informed choices that will help to ensure that you’re not paying more than your fair share of taxes owed.

For individuals contemplating separation or divorce, tax planning prior to these events can often result in significant savings during the divorce process. Consulting a tax professional to discuss the pros and cons of filing joint or separate tax returns is always advisable for individuals who plan to divorce in the coming months. With respect to previous year’s tax filings, regardless of whether they were filed individually or jointly, gathering copies of these documents today will expedite the discovery phase of your divorce case and help to reduce your overall divorce costs.
Do you and your spouse own your own business? In situations where a business operates as a cash business it is important to collect and maintain information as to the businesses’ monthly income. This information will be important for the valuation and eventual equitable distribution of marital assets. Depending upon your particular circumstances, pre-planning and consultation with your attorney and accountant can often result not only in tax savings but ensuring your overall financial protection.

For those presently involved in divorce proceedings, an individual’s tax filing status is often an issue as it will determine which party has the right to claim their children as dependent exemptions. Many individuals in the midst of a divorce case also have questions concerning the tax treatment of court ordered payments which have been put in place while their divorce is pending. The tax treatment of payments made from one spouse to another, or payments made by one spouse on behalf of their children is often dependent upon the language contained in the Order signed by the Judge. While legal advice generally is not tax deductible, it is important to note that under certain criteria attorney fees regarding counsel provided in respect to alimony can often be claimed as a deduction.

For individuals whose divorce from their ex-spouse has already been finalized, ensuring the appropriate credit for support payments made to an ex-spouse is key. The potential tax implications of asset transfers made pursuant to the Divorce Agreement including the transfer of any retirement assets such as pensions or 401k plans, along with the tax effect of any court mandated home sale proceeds are often relevant. For those individuals already divorced the appropriate implementation of the terms of their settlement agreement can spare the individual unwanted future correspondence from the Internal Revenue Service.

Whether you are presently divorcing your spouse, contemplating doing so or are already divorced, you should have knowledgeable and experienced advice regarding any potential tax liability. The Family Law Group at Lindabury is thoroughly experienced in these areas and has the additional resource of an in-house Tax Practice whose attorneys are thoroughly familiar with the intricacies of the Internal Revenue Code. Our attorneys are experienced in dealing directly with Internal Revenue Service when that situation becomes unavoidable.

Lindabury’s Family Law Group has decades of experience representing clients in divorce and other serious New Jersey family law matters. We provide the full range of divorce and family law services and are easily accessible from our Westfield New Jersey office.