The Tax Implications Of Divorce
Divorce changes a couple’s life in a lot of ways, including financially. Some of those financial changes are obvious. A couple will, for instance, have to divide their marital assets and one spouse could be entitled to alimony or child support. All of these changes could end up having a significant financial impact on a family. One thing that many couples forget to assess, however, is how their divorce will affect their tax status. Read on to learn more about some of the tax implications of divorce in Florida.
Alimony-Related Tax Implications
For many years, alimony payments made to a former spouse were deductible from the paying party’s taxes. Furthermore, the recipient was required to report those payments received as income on his or her yearly taxes. In 2017, the Tax Cuts and Jobs Act made significant changes to these rules. For divorces finalized prior to December 31, 2018, alimony receives the same tax treatment as in prior years. For those finalized in 2019 and later, however, alimony is no longer deductible for the paying party or taxable as income for the recipient. Unfortunately, these changes have made many divorcing parties less inclined to agree to pay alimony, or less generous if they do. It’s also important to remember that recipients also won’t get the same kinds of deductions that they may have been counting on.
Custody-Related Tax Repercussions
There are also some tax incentives when it comes to child custody issues. For instance, a parent who claims a child as a dependent could be entitled to certain tax credits and deductions. To claim a child as a dependent a parent must have primary custody of the child. Parents can, however, alternate this right on an annual basis, making it worthwhile for many couples to negotiate who can claim these benefits when engaging in the divorce settlement process.
Property Division-Related Tax Benefits
In Florida, divorcing couples are required to divide their marital assets according to the state’s equitable division standard. This means that the parties must divide their assets in a way that is deemed equitable, or fair to both spouses. Which assets a person ends up with could have tax-related repercussions. For instance, if one spouse retains the family home, he or she will be able to continue to deduct things like mortgage interest on their yearly tax return. Transferring non-liquid assets between spouses as part of a divorce settlement can also come with tax consequences. This includes 401(k) and 403(b) plans, pensions, IRAs, and some stock options. For an assessment of the tax repercussions of your own property settlement agreement, call our office today.
Helping You Prepare for the Tax Implications of Divorce
The tax implications of divorce aren’t always obvious, which can make it hard to prepare for them. To learn more about the likely tax implications of your own divorce negotiations, reach out to dedicated Florida divorce lawyer Sandra Bonfiglio, P.A. at 954-945-7591, or complete one of our brief online contact forms.