Divorce: Tax Deductions and Credits
Westfield, Stockbridge, Northfield and All of Western Massachusetts
Just as marriage has tax implications, so does divorce. You may sell property and be required to pay capital gains tax. You may pay or receive alimony, which is taxable to the recipient and deductible to the payor. Questions about these and many other issues must be resolved during the divorce process so that you will know about your obligations. Ideally, it is good to have the advice and counsel of an attorney with a strong financial background to counsel you.
At The Massachusetts Family Law Group, our legal team is headed by founder Irwin M. Pollack. With his many years of experience in the business world, he is able to advise clients about financial matters. When needed, we draw upon the resources of the firm's statewide brain trust that includes experts and specialists in state and federal tax laws. Before you agree to anything during divorce, you need to know the full impact of divorce on your tax obligations.
Our Springfield attorneys help clients deal with matters such as:
Deductions and Credits
Paying alimony gives you a tax deduction, while receiving alimony triggers taxable income. Some clients choose to continue paying the mortgage on the marital home, as that qualifies as a tax deduction. Custodial parents are often entitled to a child tax credit, depending on the circumstances. Before accepting an alimony proposal, taxes should be included in any consideration in order for you to fully evaluate the net effect. Our lawyers can advise you about credits and deductions.
Child Support
Child support payments are neither deductible nor reportable as income. Spousal support payments are deductible and must be reported as income by the receiving spouse. Of course, there are child-related tax credits and dependency exemptions that can be allocated to either spouse by agreement or court order.
Retirement Accounts
A court order called a qualified domestic relations order (QDRO) provides for benefits from a pension or other qualified plan to someone other than the plan participant or owner. The benefits are taxable to all recipients. Traditional IRAs can be transferred to your spouse — either entirely or in part — without incurring any special tax liability. Of course, the receiving spouse will have to pay taxes when withdrawing money from the IRA.
Filing Status:
Your marital status at the end of the tax year determines your filing status for state and federal taxes. If your divorce is finalized on January 15, your tax status for the previous year is "married." For that year, you and your spouse will need to decide whether it is more advantageous to file jointly or file under the "married, filing jointly" status. After your divorce, your tax status is either single or "head of household." Our attorneys can advise you or refer you to highly skilled tax accountants in complex tax situations.
Not Getting Results From Your Current Attorney?
If you are not confident that your current lawyer is giving you the right tax information or has not referred you to a tax specialist, consider hiring The Massachusetts Family Law Group. We understand the tax implications of divorce, and we help our clients make good decisions that will protect them at tax time. You have the right to change attorneys; it happens all the time.
Learn More About Divorce and Taxes in Massachusetts
For information about your tax status after divorce, contact our Springfield attorneys. Call The Massachusetts Family Law Group toll free at (800) 941-DIVORCE.
