Tax Ramifications of Divorce: Winston-Salem & Greensboro Attorneys
Helping spouses navigate tax and finance issues during divorce in the Piedmont Triad
Divorce can be a complicated and stressful process. Even if you and your spouse are mostly in agreement about the issues around your divorce, you will still have a variety of financial decisions to make during the split, which will all have an effect on your taxes. Further, as the divorce proceeds, you may feel pressured to make quick decisions – ensure you have proper and informed representation on your side.
The divorce attorneys at Hartsoe & Associates, P.C. have over 25 years of experience helping clients sort out their finances during a marital split. We can work with you, recommend knowledgeable accountants, and give you the information you need to make the right decisions for you and your family. Call us today for answers to your questions.
How will my divorce affect my taxes?
Tax season poses a great amount of stress for many Americans. Tax season after a divorce can be even more difficult, having to account for issues like spousal support, child support, distribution of property, and a new filing status. Following is some important information to consider.
Taxes, alimony, and child support
Spousal support (also called alimony) is when one spouse pays support to the other post-divorce. Child support is when one spouse pays support to the other, but for the benefit of the child only. Before 2018, spousal support was tax-deductible on the part of the payer, but child support was not. Today, however, neither spousal support or child support are tax-deductible, and the recipient does not have to pay taxes on what he or she receives.
If you are ever advised to pay more in alimony in order to offset your tax bill, keep in mind this is outdated and inaccurate advice and you should consult with our Winston-Salem attorneys for updated information.
Distribution of property
Under United States Code § 1041, there is no tax on property division in a divorce. However, there may be hidden tax consequences with property division transactions. These are called capital gains. Some investments, when sold, will result in a capital gains tax.
For example, if you cash out a 401(k) with plans to give the money to your spouse in exchange for the house, the IRS will want to tax you on that payout. However, you can avoid that tax by making the transfer under a qualified domestic relations order (QDRO). The Greensboro lawyers at Hartsoe & Associates can clarify the implications on your taxes during the process of dividing your marital property to ensure you pay no unnecessary taxes.
Your tax filing status is determined by your marital status on the last day of the tax year, which is typically December 31.
If your divorce is not yet finalized, there may be different tax filing statuses available to you. Depending on your situation, you may file as single, married, or head of household. Each filing status comes with its own advantages and liabilities, and it can be difficult to predict what will work best for you without the advice of an experienced attorney. Hartsoe & Associates can help.
How do I file taxes when I’m separated in NC?
The state of North Carolina, for the most part, does not recognize legal separation, although some couples do benefit from separation agreements. If you and your spouse are living separated but are not yet divorced, you can file as “married filing jointly” or “married filing separately.”
As with any tax-related issue, there are pros and cons to each, especially if you have children, and our attorneys can help you consider which might be most beneficial for you. If you and your spouse are amicable enough to file jointly, you can work together to file your taxes as in previous years when you were married. This allows you to take advantage of the same tax credits and deductions for each child.
Who claims the children on their taxes after the divorce?
During a divorce, it is crucial that you and your spouse come to an understanding about who will claim the children on his or her taxes. If you are separated and not yet divorced, you can still file jointly and you may both claim the children on your tax returns.
After the divorce, however, the primary custodial parent (the parent with whom the child lives for more than six months of the year) has the right to claim the children on his or her taxes. However, if the non-custodial parent has provided half or more of the child’s financial support, they are also eligible to claim the child or children.
Some divorcing couples agree to claim the children on their taxes every other year, or make other custom arrangements. As you can see, this can be a complicated issue to work out, which is why our family law attorneys recommend adding tax-related matters to your divorce or separation agreement.
Tax issues to keep in mind when divorcing
Although every couple’s circumstances are different – number of children, amount of property, complexity of finances – ensure you consider these tax matters during your divorce:
- After your divorce is final, talk to your employer about changing your IRS W-4 form
- Expect your tax refund or payments to change post-divorce and be prepared
- Remember that until your divorce is final, both your and your spouse’s financial activity has consequences on your joint taxes, so act with care
- Until your divorce is final, continue submitting a “filing married” tax return
What happens if my spouse and I owe back taxes and we’re getting divorced?
As with all assets and debts during division of property, any back taxes you and your spouse owe to the government will be split up. This can be addressed in your divorce agreement. Because property division is equitable and not 50/50, if your spouse makes more income than you, chances are he or she will receive more of the debt.
To split back taxes or apply for relief from your spouse’s taxes, you can fill out IRS Form 8857.
For other questions about taxes, you can also contact your local North Carolina IRS office. Our lawyers are also happy to consult with you and recommend qualified accountants if necessary.
Piedmont Triad attorneys advising clients on taxes and divorce
Divorce involves a wide variety of issues, not the least of which are financial. When drafting your divorce agreement, it is crucial you and your spouse take into account the effects the end of the marriage will have on practical issues, like your taxes. The attorneys at Hartsoe & Associates, P.C. put their experience to work for you. We serve families and clients in Winston-Salem and Greensboro, as well as the Piedmont Triad. To schedule a consultation with an experienced lawyer, please call 336-725-1985 or fill out our contact form.