In a post earlier this year, we discussed the potential tax implications of dividing assets in divorce. Other aspects of divorce can also have tax consequences.
Overlooking the tax consequences now can cost you big — sometimes for years to come. Here is what to watch out for and protect your financial interests down the line.
Who claims the kids?
If you and your spouse have children, only one of you can claim them as dependents for tax purposes. This means you’ll need to decide who gets the child tax credit and other benefits. It’s something that can affect your filing status, so it’s important to sort everything out ahead of time to avoid problems with the IRS later on.
Alimony isn’t what it used to be
For divorces finalized after 2018, alimony is no longer tax-deductible for the payer or taxable income for the recipient. If you’re expecting to receive or pay spousal support, ensure that you understand how the tax rules affect the numbers so you can plan accordingly.
Property division may have hidden costs
Transferring assets between spouses during a divorce is generally tax-free. However, there may be future consequences. For example, if you get the house and later sell it, you might trigger capital gains taxes.
Get the facts right
The last thing you want after a divorce is a surprise IRS bill because something was overlooked in your settlement. Working with someone who understands the tax implications can save you a lot of trouble and expense. Remember, the financial decisions you make during this time can affect your long-term future. Therefore, having financial and tax advisors along with experienced legal guidance can be highly valuable.