Understanding the Potential Tax Implications of a Florida Divorce
Are you preparing for a divorce? If so, you undoubtedly have a lot on your mind. Taxes are probably one of the last things you want to think about right away. However, a marital separation or divorce has significant tax implications and it is a mistake to overlook taxes and other key financial issues. In this article, our Coral Springs and Boca Raton divorce lawyers discuss five ways that divorce could affect your taxes.
Five Ways that Filing for Divorce Could Affect Your Taxes
- Change Your Tax Filing Status
After finalizing a divorce, you will likely be required to change your filing status. Most married couples file their taxes together. Once separated, you will no longer be able to submit a joint tax return. The precise effects of the change in filing status will depend on a number of factors, including, but not limited to, your salary and your former partner’s salary. Be sure to adjust your tax withholding to ensure that you are not hit with a surprise bill from the IRS.
- Sale (Liquidation) of Major Assets
In some cases, divorcing couples decide to sell certain high value assets in order to facilitate a settlement. While there is nothing wrong with this strategy, selling assets could have tax implications—especially if you are in a high net worth marriage. Make sure that you consider the tax ramifications of any significant property/assets sales.
- Child Tax Credits and Child Tax Exemptions
All parents should know that child tax credits and child tax exemptions can only be taken once per year. As clearly described by the Internal Revenue Service (IRS), both parents are not entitled to claim a child as a dependent. A child may only be claimed by one taxpayer (individual or married couple) per tax year. The parent with primary custody gets the first option to claim the child. Though, in some cases, it may be advantageous for both parties to allow a higher income, non-custodial parent to claim a child as a dependent.
- Protection of Retirement Savings
One of the most common divorce-related tax mistakes is making an early withdrawal from a tax-advantaged retirement account. Many divorcing couples want to get access to their retirement savings so that they can divide the funds. However, this should be done through a Qualified Domestic Relations Order (QDRO) so that one can avoid negative tax consequences. Otherwise, you could incur early surrender fees or tax penalties. Work with a lawyer who can help you divide retirement savings.
In 2017, federal law was reformed to change the taxation of alimony. It is no longer taxable income for the receiving spouse nor it is tax deductible for the paying spouse. Unfortunately, the changes to federal law are financially disadvantageous to many divorcing couples. A divorce attorney can work with your accountant to help you structure alimony in a manner that makes the most sense given current tax regulations.
Call Our South Florida Divorce Attorneys for Immediate Help
At HVW Law Group, our Florida family lawyers have the skills, knowledge, and experience to represent clients in high net worth divorce cases. If you have questions about the tax implications of a divorce, we can help. Contact us now for a strictly confidential family law consultation. We represent clients throughout South Florida.