Divorce can be a difficult and emotional time, and it can also be a time of financial uncertainty. One of the many questions divorcing couples face is how their divorce will affect their taxes. The answer depends on several factors, including the length of the marriage, your income and the assets and debts.
Here’s what you should know about the impact divorce could have on your taxes.
Tax planning for divorce
If you are considering divorce, it is essential to understand the changes that could influence your tax liabilities. Here are some general things to keep in mind:
- Alimony: If you are awarded alimony, you will be able to deduct the alimony payments from your taxes. However, the person who receives the alimony will have to include the alimony payments in their income.
- Child support: Typically, child support is not considered taxable income for the parent who receives the payments and is not a deductible expense for the parent who makes the payments.
- Division of assets and debts: When you divorce, you will need to divide your assets and debts. How you divide your assets and debts can affect your taxes. For example, if you sell a home you own jointly with your spouse, you may have to pay capital gains tax on your share of the gain.
- Retirement accounts: If you have retirement accounts, such as a 401(k) or IRA, you will need to decide what to do with them when you divorce. Depending on your situation, you may be able to keep the accounts in your name or roll them over into your spouse’s name. How you handle your retirement accounts can affect your taxes, and you may need to file specific paperwork to disclose the reason for the change.
- Health insurance: If you were covered by your spouse’s health insurance before your divorce, you may be able to continue to be covered under your spouse’s health insurance for a while after your divorce. However, you may need to pay for the coverage yourself.
Depending on your situation, the change to your tax situation may be significant, and it is important to be aware of the shift ahead of time.
Knowing how to prepare
Divorce can have a significant impact on your taxes. You should consider some of the following tips as you look toward your future:
- Start planning early: The sooner you start planning for your divorce, the more time you will have to make informed decisions about your taxes.
- Get professional help: A tax advisor can help you understand how your divorce will affect your taxes and can help you make the best decisions for your financial future.
- Be prepared for changes: Your tax situation will likely change after your divorce. Be ready for these changes and ensure you are taking all the necessary steps to comply with the tax laws.
Divorce can come with many challenges, but it can also be the beginning of a new chapter. When you are prepared for the changes that come with divorce, you can have more control over the outcome.