How to Understand Tax Issues After a Divorce

Divorce is difficult. Nothing will test your strength of character like divorce will, and you need to be aware of that. You can't go through divorce and not expect your life to change drastically. Your income will drop, you will have other financial difficulties and certain tax issues after divorce.The following will help you understand how your financial and tax issues will change after a divorce.

Difficulty: Moderate

Instructions

1. Know that your income will drop after your divorce is final–if you and your spouse had dual incomes then you will have more expenses because you will be paying all your living expenses yourself, and if there was only one income in the household, then you will probably be paying, or receiving child support or alimony.

2. Paying alimony–when you pay alimony you will be able to deduct this expense from your taxes, and when you receive alimony you will have to pay taxes on this income.

3. Understand the complications that may arise with the house. You may want to be awarded the house but can you really continue to make those payments on your own? Remember that if you plan on selling the home you will probably have to pay a capital gains tax.

4. Paying child support is not tax deductible and you wont be able to deduct this from your taxes.

5. Receiving child support is not taxable so you wont have to pay taxes on this money.

6. Consult with a tax expert to find out how to file and under which category you can file and which fits your best interest.

7. Split assets but always keep in mind what the after tax value of such assets really will be.

8. Realize that retirement funds will imply future tax liabilities.

Tips & Warnings

• Getting a divorce has a lot of emotional and financial issues linked to it and most of these can be quite complicated. What you may see as an opportunity now and a great division of assets may become complicated at a future time. Think carefully about what you are doing and get the expert help you need. Consult with an expert accountant or tax attorney, as well as a good divorce attorney. Although this may be time of great emotional upheaval you really need to think about your financial future and what this divorce will imply for you in the future.