Divorce is a highly-involved process; it addresses child custody, child support, property and debt division, and selling or dividing marital assets, such as the family home and vacation properties. If you’re getting a divorce, you have a lot of things to take care of. Taxes may not be one of your main concerns, but that doesn’t mean they should be ignored during the divorce process.
When you get a divorce, it affects your taxes in more ways than one. For this reason, it’s important to take taxes into consideration while you’re negotiating a divorce settlement. Read on to learn how divorce affects a person’s taxes:
1. Child Support. Are you going to be paying child support? If so, you cannot deduct your child support payments. Likewise, custodial parents do not count child support as income.
2. Paying Spousal Maintenance. While paying spouses cannot deduct child support, that is not the case with spousal maintenance. If a spouse pays spousal maintenance, he or she can deduct it on their annual tax return – that is a plus for higher-earning spouses. However, spousal maintenance can ONLY be deducted if it is included in the divorce decree. For example, if you give your former spouse cash to help get back on their feet but it wasn’t included in the divorce decree, you cannot deduct those cash payments made to your former spouse.
3. Receiving Spousal Maintenance. Spousal maintenance is tax deductible for the paying spouse, but it is also counted as “taxable income” for the receiving spouse. If you are to receive spousal maintenance, you may want to take steps to avoid paying a penalty. To do this, you can increase the tax withheld from your paycheck or you can make estimated tax payments.
4. Contributing to Your Spouse’s IRA. If you contributed to your spouse’s IRA in the same year you obtained a divorce, you cannot deduct those contributions. On the other hand, if you made contributions to your IRA, those contributions may be deductible.
5. Changing Your Name After the Divorce. After the divorce, you may want to go back to your maiden name. If you decide to change your name for any reason, don’t forget to notify the Social Security Administration and apply for a new Social Security card. Essentially, if the name on your tax return is different than the one on the SSA’s records and you have a tax refund due, it can be delayed until you get a new Social Security card.
To learn more about how divorce affects taxes, reach out to Jones Law Firm, P.C.to schedule a free case evaluation. We are here to help!