Divorce and Taxes: What You Need To Know

There are so many financial implications to divorce including tax obligations. Work with expert divorce attorneys and financial professionals to plan ahead and make thoughtful choices about your money.

by Ginita Wall, CPA, CFP®, CDFA™

Ginita Wall Divorce Financial advice San Diego 858-472-4022

Ginita Wall

 

Divorce is difficult enough. What could add to the anxiety that divorce brings? Taxes. If you are one of the many people who recently divorced, this year, as a result you will be

coping with new tax issues, and may even be filing your own tax return for the first time. Here are ten tips to help you handle tax issues now that you are divorced.

  1. Determine your filing status. Your marital status at the end of the year determines how you file your tax return. If you were divorced by midnight on December 31 of the tax year, you will file separately from your former spouse. If you are the custodial parent for your children, you may qualify for the favorable head of household status. If not, then you will file as a single taxpayer, even if you were married for part of the tax year. If you aren’t sure what would be better, you can ask your tax professional to project your taxes both ways to see.
  2. Consider the tax implications of support. Child support is not deductible to the person who pays it, but alimony is. Likewise, the recipient of alimony must claim it on her tax return, but child support isn’t reported as income. If you rolled your support together into “family support” in your agreement, that makes it fully taxable to the recipient and deductible to the payer, just like alimony. That often saves income taxes, though, because more income moves from the payer’s higher tax bracket to the recipient’s lower tax bracket, so there’s more after-tax income for them to split.
  3. Don’t run afoul of the special rules regarding support. If alimony payments are concentrated in the first year of two after divorce, the IRS may consider the money to be non-deductible property settlement. And if alimony is scheduled to end within six months of a child’s 18th or 21st birthday, the IRS may consider the alimony, in reality, to be disguised child support. Be sure you consult with a knowledgeable tax professional or attorney to review the support portion of your divorce agreement before you sign it.

    The status of child custody and child support could affect your taxes.

  4. Review your divorce decree to see who will claim the children as exemptions. If your divorce agreement does not specify who claims the children as exemptions, then the exemption for your kids goes to the custodial parent. If you have joint custody, the exemption goes to the parent who has the child the greatest number of days during the tax year. You can modify this by making a different provision in your divorce agreement. Again, if you aren’t certain where the exemptions would do the most good, on your tax return or your soon-to-be-ex’s return, see a tax professional and find out.
  5. Get signed Form 8332 if required. If you are entitled to claim the tax exemption for children who spend less than six months of the year living with you, then you will need your ex-spouse to sign IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents). A copy of this form must be filed with your income tax return for you to claim the tax exemptions for children not living with you. If you are to claim the children year after year, your ex can sign a Form 8332 that grants you the ability to claim them as long as they are eligible dependents.
  6. File first if exemptions are an issue. If you are entitled to claim the children on your return, but you think your ex may try to claim them instead, file early in the year. That way, since you’ve already claimed the children, the IRS will make your ex prove he or she was entitled to the exemption. It’s rare that this type of disagreement arises after a collaborative divorce, since you make the decision together who should claim them. 
  7. Claim the child care credit if you are eligible. If you are the custodial parent and you incur work-related child care for children under the age of 13, you may be able to claim a credit for a portion of the cost. Unlike the exemption, which can be assigned using IRS Form 8332, the child care credit is available only to the custodial parent.
  8. Review legal fees paid during your divorce. Although most legal fees are not tax-deductible, fees you paid for advice concerning the tax consequences of your divorce can be taken as an itemized deduction on Schedule A of your tax return, as can fees incurred to obtain alimony. Other fees, such as the cost of preparing a new title for your rental property, can be added to the tax basis of your assets.
  9. If you are employed, change your withholding on Form W-4. You can claim one additional exemption for every $4,050 of deductions, including alimony payments. If you are receiving alimony, consider asking to have extra tax withheld from your paycheck to cover your new tax liability. If you don’t, you should make estimated tax payments (see #10).
  10. Make estimated tax payments if withholding isn’t enough. If your withholding won’t be enough to cover your taxes for the coming year, set up quarterly estimated tax payments so that you won’t owe taxes and underpayment penalties at the end of the coming year.

Divorce may not be as inevitable as taxes, but it certainly brings complications to tax filing. Follow these ten tips, and the process should go smoothly in the future.

 

Myra Chack Fleischer Named Collaborative Family Law Group 2016 Board President

Attorney Myra Chack Fleischer, Fleischer & Ravreby, Carlsbad California

Contact: Gayle Lynn Falkenthal, APR
619-997-2495 or gayle@falconvalleygroup.com

(SAN DIEGO) – Family law attorney Myra Chack Fleischer, CFLS, has been named President of the Collaborative Family Law Group of San Diego for the 2016 term. Fleischer is Lead Counsel for Fleischer & Ravreby, a family law practice based in Carlsbad, California, with offices in Beverly Hills, California.

Attorney Myra Chack Fleischer, Fleischer & Ravreby, Carlsbad California

Attorney Myra Chack Fleischer, Fleischer & Ravreby, Carlsbad California

Founded in 2000, members of the Collaborative Family Law Group of San Diego work together to learn, practice, and promote Collaborative Practice for problem solving and the peaceful resolution of family law issues, with an eye toward preserving the emotional, as well as the financial, assets of the family. Its goal is to transform the resolution of family law issues through respectful, Collaborative processes that protect the integrity and health of family relationships and eliminate the need for families to resort to litigation.

An experienced family law attorney practicing law in Southern California since 1997, Myra Chack Fleischer founded her own law firm in 2001. In 2013, Fleischer added the respected law office of Richard R. Ravreby to her firm, forming the new firm Fleischer & Ravreby based in Carlsbad, California. Fleischer serves as Lead Counsel with a focus on divorce, property, custody and support, settlement agreements, mediation, asset division and family law appeals.

Prior to becoming an attorney, Fleischer worked for 10 years as an accountant in public accounting and then as the controller of international mid-sized software company. Her financial background combined with her law expertise is a key factor in Fleischer’s success in representing clients in cases where there are issues involving complex asset divisions. Although known as a formidable litigator, Fleischer strives to avoid court where possible, driving settlement of assets through Consensual Dispute Resolution, including Collaborative Divorce.

“Being involved in Collaborative Practice through the Collaborative Family Law Group of San Diego represents a significant advancement in resolving civil disputes like divorce,” said Fleischer. “Going through a divorce is in some ways harder than dealing with the death of a loved one. It will get worse before it gets better. But in so many cases, couples can avoid the ‘scorched earth, win at all costs’ mindset involved in litigation.

“Collaborative Divorce keeps decision-making in the hands of the couple. The most significant advantage is sparing children the emotional fallout from an acrimonious divorce, preserving the family relationships and allowing them to move forward in a healthier way,” said Fleischer.

“My goals for the coming year are twofold. First, to build contacts with professional associations and acquaint their members with this method of divorce through presentations and speaking engagements. This will help them advise their employees, clients, family and friends about this healthier divorce alternative. Second, to build our ongoing series of public divorce workshops called ‘Divorce Options’ to allow individuals and couples to learn about the different methods of getting divorced so they make an informed choice for their family,” Fleischer said.

About the Collaborative Family Law Group of San Diego

CFLG San Diego’s members work together to learn, practice, and promote collaborative processes for problem solving and the peaceful resolution of family law issues, with an eye toward preserving the emotional, as well as the financial, assets of the family. Its goal is to transform the resolution of family law issues through respectful, collaborative processes that protect the integrity and health of family relationships and eliminate the need for families to resort to litigation.

CFLG is online at www.collaborativefamilylawsandiego.com, and LinkedIn.

Your Real Estate Options During Divorce (VIDEO)

The financial impact of divorce on the family is one of the leading concerns couples have entering the divorce process. For most families, the family home is their largest single investment. What are you options? Should you sell your home when you divorce? Should you keep it and co-own it? What about renting it out? This can be one of the larger and more important decisions you need to make.

Collaborative Family Law Group of San Diego member Justin Reckers, Justin A. Reckers, CFP, CDFA and CEO of WellSpring Divorce Advisors answered questions about issues focused on real estate concerns during divorce on this recent edition of the “Craig Sewing” YouTube video program.

Contact the Collaborative Family Law Group of San Diego at 858-472-4022 or visit our contact page to consult with one of our members to learn about your financial options during your divorce.