April 15th Is Just Around The Corner
As tax season approaches, recently divorced parties should pay special attention to the tax consequences of certain aspects of their settlement agreements or judgments of divorce. The most common question is whether certain payments, such as alimony and child support are taxable events. The simple answer is that alimony is generally taxable as income to the party receiving it and deductible by the paying party, whereas child support is not taxable and deductible. The taxability of these payments should certainly be considered when negotiating the terms of your divorce. Tax issues can be of such importance, that changes in the tax code affecting the taxability or deductibility of payments may be sufficient to warrant a Court review to modify the terms of your agreement. Additionally, it should be noted that payments and/or transfers of property (whether liquid assets, or otherwise), referred to as “equitable distribution,” are not generally taxable events. It is important to consider these issues during the negotiation and drafting of any settlement agreement.
Further, prior to filing taxes, divorced parties should evaluate their agreements or judgments and determine which party will receive credits/deductions/exemptions for real estate, minor children, etc. and ensure that they begin compiling the forms and information needed for tax time. By way of example, if the non-custodial parent is to claim a child as a dependent, the custodial parent will need to fill out a form provided by the IRS. Now is a good time to examine these issues to avoid panic once the tax filing deadline is approaching. Lastly, and most importantly, parties should consult a trusted tax professional during and after the divorce process in order to obtain the most up-to-date tax advice and information. Do not rely upon your family law attorney, friends or family for tax advice. Posted by Robyn E. Ross, Esq.
*Disclaimer- Information in this blog post should not be considered or construed as tax advice. In order to obtain tax advice, please consult with a tax professional.