Missouri Family Law Blog

It’s that time of year again and many clients often fail to consider how their marital status affects their taxes. Here are some bullet points to consider with respect to how your divorce affects your tax status:
1. Filing status for tax purposes is determined on the last day of the year–December 31. During your divorce proceeding even if you are living in separate households but not legally divorced as of December 31 you are still considered married for that tax year. Hint: either get divorced by the end of the year or plan on filing jointly for the prior tax year even if you are no longer residing together on December 31 because married filing jointly generally produces the lowest tax burden. Don’t file together if you think your spouse has underreported their income for the year because the IRS can assess underpayment penalties and interest in addition to the tax owed for underreporting.
2. When children are part of a divorce there are the following tax issues related to them that need to be considered: dependency exemptions, child care credits, child tax credits, medical deductions for children, and education tax credits-hope and lifetime learning credits. Talk to your tax preparer so you know what to negotiate for in your divorce settlement.
3. Generally cash payments received as part of a divorce are not taxable under IRS Code 1041. However, the tax basis of the asset being received is important. If you receive an asset with a low cost basis (ex. stock) but intend to sell it at a much higher market value post divorce there will be tax consequences. Again, talk to your tax preparer so you know what to negotiate for as part of your divorce settlement.
4. Consider the taxes associated with selling the marital home if you receive it. You may be paying a capital gain. Again, before you talk to your divorce lawyer give your tax preparer a call and find out exactly what the tax consequences could be of any potential divorce settlement. Then, you’ll know what to tell your divorce lawyer about what you want to negotiate for.
5. Maintenance. The spouse who receives maintenance has taxable income to report at the end of the year for any maintenance received. The spouse who paid receives a deduction for what was paid. Child support is not a taxable event. It makes a very big difference how any support paid is worded with respect to whether you paid your spouse child support or maintenance after you were kicked out of the house. Make sure you discuss this with your divorce lawyer.
6. Carryover losses on prior year’s tax returns are an asset to be divided by the court and should be considered in divorce settlements. Look at your prior year’s tax returns and see what carryover losses or gains are available that you can negotiate to claim as part of your divorce settlement.
7. Your divorce settlement should consider who will claim mortgage interest, real estate and property tax, capital gains and losses, and charitable contributions in the year the divorce is finalized so each party knows what they can claim on their taxes for that year.
These are just some tax consequences to consider as part of your divorce. In order to obtain more information make sure you speak with a qualified tax professional and a good divorce lawyer (www.columbiamolawfirm.com) who is aware of these factors to be considered in any divorce settlement.

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