Taxes and the implications thereof are a significant consideration when preparing for your divorce. You need to be aware of the following concepts and ideas, not only when negotiating your divorce settlement agreements, but also during the pendency of your case.
- Should you consider remaining married for the balance of the year (depending on when your case reaches a final conclusion)? Is it beneficial to both parties to remain married and file jointly?
- What will happen with the tax refund? Will it be shared? What will the proportions be? Is there a joint account that still exists to which this check can be deposited?
- In the alternative, if taxes are owed, who will pay the debt and where will those funds be derived?
- If you are in the midst of a divorce, will you file jointly or separately?
- If you elect to file separately, who will be permitted to claim deductions that may be joint, such as those associated with the marital home (taxes, interest), childcare credits, college tuition credits, etc.
- Who will be permitted to claim the children as dependent deductions? Will one party be permitted to file as Head of Household?
- Is either party self-employed or are there cash components to the marital lifestyle, such that one party may want to consider the ramifications of filing jointly?
- Do you qualify for innocent spouse relief? Should you make such an application?
- Does alimony end or reduce around the same time as child-related events (18th birthday, graduation from school, etc.)? If the answer is yes, it is possible that this can be considered child support and will be “recaptured” by the IRS, which would mean that the previously made alimony payments may be reclassified as child support and the tax deduction lost. This can have serious implications and it is critical that your agreement be carefully drafted with this concept in mind.
- Not all alimony must be tax-deductible by the payor and taxable to the recipient. There may be certain advantages to making some or all of the support non-taxable, and this should be discussed.
It is imperative that you meet and speak with a tax expert as part of your divorce process. Your divorce attorney should not be providing you with tax advice (unless he or she also happens to be a tax professional).
To assist clients in these complicated tax matters, Gebhardt & Kiefer, PC utilizes the talents of Daniel S. Makoski, Esq., who received an LLM in Taxation from New York Law School. Mr. Makoski has extensive experience advising clients on personal income tax matters, including tax-efficient methods of acquiring and distributing assets; negotiating with tax authorities to minimize or eliminate tax deficiencies; appearing in the U.S. Tax Court; and handling IRS appeals.
Diana Fredericks, Esq., is a partner with Gebhardt & Kiefer, PC and devotes her practice solely to family law matters. Contact Ms. Fredericks for a consultation at 908-735-5161 or via email. In 2015, Ms. Fredericks was named to the NJ Super Lawyers Rising Stars list in the practice of family law by Thomson Reuters, and to the 2015 New Leaders of the Bar list by the New Jersey Law Journal.