Divorce and Taxes are at the top of many people’s minds this time of year.
There are several issues you must think about when filing taxes in the midst of or after your divorce is final.
- New Filing Status
- Determining Who Claims the Children
- Reporting Maintenance or Not – when was your divorce final?
- Did you sell the marital home?
- Did Retirement Accounts get Exchanged?
- Did you properly deduct legal fees?
Your lawyer is not your tax advisor. We can share general information and discuss legal possibilities, but it is always wise to consult with a Certified Public Accountant to determine how your legal decisions and determinations will impact you financially.
Here is a great article that better explains the issues generally from Christy Rakocyz Bieber of CreditKarma: https://www.creditkarma.com/tax/i/filing-taxes-after-divorce/
There are many clients that did not have their divorce finalized before the end of 2018. Depending if they continued to live together or apart will effect if they file for 2018 as married filing jointly or married filing separately.
When they file separately they must communicate clearly if they are claiming children as dependents. The last thing you want to do is set yourself up for a tax audit in the midst of your divorce. You must communicate clearly.
You want to achieve the greatest tax benefit for the family if your divorce was not finalized before the end of 2018. By speaking with a tax consultant you can better understand how to file for the greatest financial benefit.
This is true for deciding who claims the children also. While the default language in our agreements is either the parents alternate years or share the children, if there is a significant difference in incomes and a greater benefit to one parent or the other, then it is possible to be creative with language such as dad will claim the children every 3rd year, or mom will claim the children every year, but a % of any refund will be applied directly to an account for the children’s expenses.
Just the other day during a temporary orders hearing in Moffat County, Colorado, our client was asked by the court to calculate three different scenarios for the taxes with his turbo tax program and then use the one that provided the greatest tax benefit to the family since there divorce is not yet final.
The other issue that is often not properly handled by attorneys who do not know better, is the issue with capital gains taxes. If you keep the marital home in the divorce and choose to sell it later, you may have capital gains issues to address and lose additional monies you did not consider when you divorced.
Sara and Pete, decided to divorce, but to keep the marital home as a rental since the Denver market is so great. Since any sale will occur after the divorce – if at all, they will have mortgage interest, rental income and property taxes to consider each year that they continue to own the home together. Will they each claim half? Will it benefit one party more to claim all of it because of the difference in incomes? How will home improvements be paid for or credited? All questions to consider before deciding what to do in divorce.
With taxes due in just a month, do not wait!
Many CPAs are in the thick of the season for filings, so finding someone to advise you may be difficult, but certainly not as hard as doing your taxes wrong, or losing out on possible credits or deductions.
Good luck with your taxes and call me to discuss any of legal questions you may have when getting divorced.