Tax Implications of Divorce in Worcester, MA

Worcester Divorce Attorneys Who Focus on Tax Considerations

Too many divorce lawyers fail to take into account certain issues related to divorce and Separation Agreements. With years of both business and family law backgrounds, our attorneys are especially qualified to investigate and consider all of the tax issues related to divorce.

The eight tax considerations to focus on most are:

1. The marital home. Your dream house can, and may, become your nightmare if your house is your largest asset, and one which you would like to keep. Obviously, if it has to be sold, you need to figure out how to pay as little capital gains tax as possible.
   
   Under current tax law, married taxpayers can exclude from taxation up to $500,000 of their home profit, so long as during the past five years prior to sale: (1) they both lived in the house for at least two years (the so-called "use" test) and (2) at least one spouse owned the home for at least two years (the "ownership" test).
   
   But what happens if you and your spouse only lived in the home for a very short term and you got the house as either part of the settlement agreement or division of the marital estate? Be careful; you might have to pay tax in any gains associated with the sale.
2. Child support payments. Child support does not count as taxable income to the recipient nor is it deductible by the payer.
3. Alimony. Alimony is tax deductible to the payer and taxable to the recipient. If there is a wide disparity of income and tax rates between you and your spouse, there may be a blend of support that maximizes financial support for the entire family.
   
4. Property division. If you transfer the marital home to your spouse in exchange for other property equal to the equity you are be giving up, a taxable gain may result. You may have to pay income tax on the amount of equity you receive. Similarly, the tax consequences on transferring appreciated stock to your spouse may also effect the bottom-line of your divorce.
5. Filing status. What matters most as it relates to the IRS is what your marital status is on December 31st. If your divorce is technically final by then, you are considered divorced for the entire year. Choose whether you want to be divorced this year or next. Obviously, your filing status can be a powerful tool in negotiations. Analyze the tax consequences of each option and plan accordingly.
6. Dependency exemptions. Generally, the person with custody gets the exemptions. Do not claim the exemption on your taxes if you are not legally entitled to it. Since the IRS requires social security numbers of any dependent claimed, you will likely get caught if you both try to claim the same child or social security number.
7. Refund checks. If a joint tax refund is coming, it is wise to have it sent to your attorney. Although improper, it is not uncommon for one spouse in divorce situations to sign the spouse's name and keep all the money.
8. Legal fees. Your attorney's fees are deductible as they pertain to tax planning and advice, but beyond that you can't deduct any other legal fees. Before you agree to pay your spouse's fees, get an itemized breakdown of such expenses and assess how it would affect your bottom line in the financial aspect of your divorce.

Learn More About Tax Implications in Divorce Situations

Call our Worcester divorce attorneys to learn more about your rights and the associated tax implications of any property distribution or financial award. Call (800) 970-LAWYER or e-mail us to schedule a FREE, no-obligation consultation.