Figuring out taxes’ effects on divorce cases can add to the stress that couples may feel when going through the divorce process. Division of assets, alimony and child support are just some of the issues relating taxes and divorce. Who claims what? A Plano family lawyer can help with the various aspects of the divorce process, but here are some tips for those who are going through a divorce or who have been divorced for a while.
If a couple files their tax return on April 1, 2013 but finalized their divorce on January 5, 2013; are they considered married or single? They are still considered married in this case. However, if they finalized their divorce before December 31, 2012, they would file as single. In this case, even though they spent most of 2012 as a married couple, they would file as single because the divorce was finalized before the end of the year.
One could file as head of household if he or she:
- lived apart from an ex-spouse for at least six months of 2012;
- paid for most of living expenses; and
- can to claim any children as dependents, which is another potential tax effect on divorce.
Claiming Children as Dependents
Speaking of claiming children as dependents, both parents cannot do so after a divorce, so which one is allowed? This can be complicated unless one parent is designated as the custodial parent. With many parents sharing joint custody of their children, this can be complicated.
Parents may solve this dilemma by switching who claims the children as dependents from year to year. This means that the mother may claim them this year, the father the next year, then the mother the following year and so on. Whoever claims the children as dependents may also qualify for the child tax credit.
Alimony can have a tax effect after divorce for both spouses. The one who pays it may get the better end of the deal regarding taxes because it is considered a tax deduction that does not need to be itemized. However, the person receiving the alimony must claim it as income that could put the person in the next tax bracket and result in more taxes owed.
Unlike alimony, child support payments do not have a tax effect after divorce for either spouse. The parent paying it does not claim it on the return and the parent receiving it does not count it toward taxable income.
Splitting the House
Division of assets can be a complicated matter with which a Plano family lawyer can assist. In terms of taxes and divorce, no income taxes are paid on assets given to a party during the divorce.
However, this does not apply to houses. Capital gains taxes complicate things in this case and can have a tax effect on divorce. When a couple owns a home together and one partner gets the house in the divorce but decides to sell it, he or she must pay taxes on any amount over the $250,000 exemption. This means that if a home that the couple bought for $200,000 sells for more than $450,000, capital gains taxes must be paid.
When a couple is currently divorced but must file as married, who gets the tax refund? The Internal Revenue Service (IRS) has no say in this matter. This is an issue that the couple will have to decide. The fairest way would be to split it 50/50. However, if one spouse’s deductions resulted in most of the refund, then it might make more sense for that spouse to receive a larger portion.
Contacting a Lawyer
Taxes and divorce can be confusing subjects, especially when combined. Those who are considering divorce should be informed of tax laws and how they may affect their divorce. Plano family lawyers can help their clients better understand the tax effects on divorce and represent their interests in the divorce proceedings.