ASSETS! DIVISION! TAXES! OH MY!

There is no wizardry involved in divorce. But when Eaton Rapids couples separate or divorce, it can be complicated. Among all the facets involved with divorce, individuals may forget that there are tax implications that can prevent them moving forward. Filing status, alimony, property division and dependents can all affect the way that newly-single individuals file their taxes. To help, one financial adviser has created a list of the fundamental things that couples should know before they file their taxes post-divorce.

The first thing couples should be aware of, he says, is that their filing status may change. Depending upon when the divorce was finalized, couples may be considered married or unmarried at tax filing time. If a final decree is registered by the last day of a given tax year, the divorce applies to that whole year, so adjustments may be required.

Dependent status of children also may change depending on custody arrangements and who is named as the custodial parent. In some cases, the non-custodial parent has the right to claim children on their taxes, though an additional form must be filed.

One of the biggest considerations for taxes following divorce is how property is divided. Property, income and assets all affect tax filing. Community or marital property may be divided for tax purposes, where each party claims one half of the property as income. Separate property would be considered individually for each taxpayer.

Alimony may be considered a deduction by the person making the payments. The person receiving alimony must include that amount as income on their taxes. Couples may benefit from keeping receipts and records of payments so that they are prepared at tax filing time.

Eaton Rapids couples may find it beneficial to consider the tax implications of divorce ahead of the process rather than after. Having the ability to seek advice during the property division process can help couples understand what they will be required to do after the process is finalized.

Source: The Orange County Register, “Tax decisions can be overlooked during divorce,” Patrick Harper, Sept. 18, 2012