Divorce, property division and taxes: items to consider
Apr 17 2014 - Posted by On Behalf of the Lincoln Law Firm, PPLC, in Property Division, Tagged in Marital Property, Property Division
The financial aspects of a Texas divorce can be a source of conflict or a road map for the future, depending on how couples approach money matters. One issue that some couples may not immediately consider is the tax consequences of a divorce. According to the CEO of Wevorce, a website aimed at helping couples divorce amicably, property division has a tendency to grow in levels of complication extremely quickly.
A CPA at Wevorce notes that some of divorce’s most taxable events happen after a divorce, rather than before. The first question of divorce-related taxes, of course, is what is one’s filing status? One’s tax filing status is what their legal status is on the final day of the previous year, December 31. So, if a couple’s divorce is finalized on that day, each party’s filing status will be single. Former spouses may be able to file as a couple, even if living separately, but that may or may not be financially beneficial depending on the circumstances.
Another aspect of divorce and taxes is the question of dependents. In the past, couples could use divorce settlements to answer the question of who gets to use the dependency status. This was an important issue because one can deduct almost $4,000 from federal taxable income for a single dependent. Nowadays, though, parents must use IRS form 8332 to declare dependents.
Homes are another common property division issue in divorce, as one of the biggest and most tangible items of marital property. If the home is not sold to a third party, the party that keeps the home can often claim the mortgage interest deduction on their taxes. Still, keeping a home has many other financial consequences and tax concerns are just one among many. It’s usually best to involve a tax professional, as well as a legal professional, as one navigates post-divorce planning.
Source: Reuters, “What’s even worse than a divorce? For some, it’s the taxes,” Lauren Young, April 10, 2014