Even when it is the most emotionally healthy decision to make, there is little denying that ending a marriage may have severe financial impacts. These effects can be minimized or circumvented altogether by careful and rigorous planning, particularly when it comes to taxes. Many potential tax issues can be addressed in divorce settlements to save both parties confusion and money down the road.
Many married couples in Texas file joint taxes. While most people understand that their filing status will change after a divorce, few realize just how quickly that change can come. The Internal Revenue Service requires that individuals use their marital status on Dec. 31 for returns covering the entire calendar year. That means couples who did not divorce until the very end of 2017 will not be permitted to make one last joint filing when returns are due in April, 2018, even though they were married for the substantial majority of the year.
In addition to filing separately, parents must also determine who will claim their children as dependents. A child may only be claimed as a dependent once every year, and having a dependent can provide significant tax breaks. In many instances, the primary custodial parent will claim the child, but this is not always the case. Some parents choose to alternate the years for claiming dependent children. This might be especially useful for parents who share 50/50 custody, and should be outlined clearly in the divorce settlement.
Alimony and child support payments also influence taxes, either as deductions or taxable income. These tax matters can be especially confusing or difficult when going from a dual-income family to a single-income household in Texas. Taking the time during asset division and other negotiations to consider how these and other taxes might influence future financial security can help ensure that both parties reach an agreeable divorce settlement.
Source: nasdaq.com, “5 Tax Moves to Make Now If You Just Got (or Are Getting) Divorced“, Dan Caplinger, Nov. 13, 2017