Tax Implications of Divorce in Schaumburg, IL
A divorce can drastically change your financial situation as your property must be divided and you could end up either paying or receiving child support or spousal maintenance. What many do not think about when going through a divorce is how these things will change your tax situation. The division of marital property, child support, and spousal maintenance may change what you pay in taxes as well as your available tax exemptions and credits.
Our divorce attorneys at Allen Gabe Law, P.C. provide representation for those going through a divorce in Schaumburg, IL, including handling matters such as tax implications. We will help you negotiate settlements when it comes to marital property, spousal maintenance, and child support and ensure that you understand the tax implications of each. Taking your unique financial and tax situation into account, we can work towards a favorable solution.
Tax Filing Status
One thing that can be confusing to divorcing couples is their status when it comes to filing their taxes. Whether you should file jointly or separately for the previous year depends on when your divorce was finalized. If your divorce was finalized and you were no longer legally married before 11:59 pm on December 31, then you need to file separately for that year. You might be able to file as a head of household if you were the custodial parent for your child for at least six months of the year.
If you were still legally married when the year ended, it is up to you and your ex-spouse to determine whether to file jointly or separately. Both spouses should choose based on which option can benefit them both and include this in the divorce settlement. If the parties cannot reach a decision, the judge will decide how to divide tax refunds and taxes owed.
If you are in a position where you need to decide whether to file jointly or separately, our divorce attorneys can help advise you on the best move to make and negotiate on your behalf.
Child Tax Exemptions
In cases of divorce, the custodial parent usually claims children as dependents as only one parent is allowed to claim a child as a dependent on their tax returns. However, divorcing spouses can reach an agreement in which each one claims a different child each year or they alternate years in which one spouse claims all children as dependents. If a custodial parent agrees to let the non-custodial parent claim a child as a dependent, they must submit IRS form 8332, Release of Claim to Exemption for Child by Custodial Parent, with their tax return.
Parents who claim a dependent under the age of 17 may be eligible for a Child Tax Credit of up to $1,000 and for children under the age of 13, working parents may be eligible for a Child and Dependent Care Credit for childcare expenses. Our attorneys can help you decide how to handle claiming your children as dependents and negotiate your wishes into the divorce settlement.
Marital Property
When a spouse is awarded marital property in a divorce settlement, it is not considered a gain or a loss to report on your taxes. To be tax exempt, the transfer of this property must be included in the final divorce settlement and transferred within one year of the finalization of the divorce. However, there are some assets that may be taxable or come with tax benefits. If your home served as the primary marital residence for two of the last five years, money made from the sale of that home is taxable, but there is a tax exemption. Those who file a single tax return can exempt the first $250,000 from the sale of the home while ex-spouses who file jointly can exempt the first $500,000. It is also possible for property sold after the divorce to be subject to capital gains taxes, but each spouse can exclude the first $125,000 earned from the sale.
When it comes to money from retirement accounts or pensions, this money is taxable. You can avoid taxes on this money if you roll it over into another eligible retirement plan or pension or if the money is divided and distributed through a Qualified Domestic Relations Order (QDRO). Child support payments are not taxable income and those paying child support cannot claim these payments as a tax deduction, but the opposite is true of spousal maintenance. These payments are taxable for those receiving the payments and those paying spousal support can claim the payments as a tax deduction.
Splitting marital property can sometimes become complicated in a divorce before considering the tax implications. Our divorce attorneys will help you fight for your fair share of the marital property and we will make sure you understand the tax implications before we help you negotiate a settlement or present your case.
Divorce Lawyers in Schaumburg, IL
Our attorneys at Allen Gabe Law, P.C. have years of experience representing people going through a divorce and we will work diligently in your best interests and the best interests of your children. We will keep you informed of your options available, as well as their tax implications, and fight for your desired outcome.
If you need to talk to our divorce attorneys in Schaumburg, IL, give us a call at (847) 241-5000, Ext 121.
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Division of Investments, Pensions and Retirement Savings
The Divorce Process
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High Asset Divorces
Mediation Attorneys
Post Decree Judgment Enforcement
Prenuptial and Postnuptial Agreements
Uncontested Divorces
Property Division Attorneys