How Divorce Can Impact Your Taxes
While you hopefully have already completed your taxes for 2015, you may already to starting to wonder about how your divorce will impact filing next year. For many married couples, especially with children, a divorce can change the way your taxes are calculated and can add a layer of frustrating complexity. All the mediators at San Diego Family Mediation Center are Certified Divorce Financial Analysts who understand the ways your taxes could change post-divorce. We are always happy to share information to help you through your dissolution process and while we’re not here to give you tax advice; here are a few of the common ways that divorce can affect your taxes.
If you pay your former spouse alimony each month, you can deduct it as long as you have a provision in your marital settlement agreement stating that it is spousal support and not for any other purpose. You file a Form 1040 to claim your deduction. If you are the spouse that receives alimony, you must claim it as income and be taxed accordingly. If you have questions about filing, it is best to talk to a certified personal accountant to assist you. Improperly claimed deductions can lead to significant penalties.
Who Claims Dependents?
One of the most common issues that arise during a divorce is who will claim the children as dependents on their taxes. Generally, the household that is the child’s main residence is the one who can claim the child as a dependent. That means the child needs to live at the household for more than 50% of the time. If you have joint 50/50 custody of your children, you can get creative in your marital settlement agreement. If you have two children, you can each take one child as a dependent. If you only have one child, perhaps one parent can take the deduction and other negotiations can be made regarding other assets. The great part about mediation is coming up with creative solutions that work for both parties.
When you divorce in a community property state such as California, you split everything, including retirement accounts. While taking money out of a retirement account early often comes with hefty fees, you are able to split the account penalty-free during a divorce. What many people don’t immediately realize is if you don’t roll over the funds into a new retirement account, the money is treated as income and taxed accordingly. This can lead to losing a large chunk of money in many cases. Talk to your mediator about how best to handle the split of retirement accounts before finalizing your divorce.
There are many tax issues that occur pre and post-divorce. If you would like to talk to a San Diego mediator about divorce mediation, call (858) 736-2411 today!