One of the most difficult aspects of divorce is ensuring that you address all the essential considerations. While some issues are top of mind, tax issues, because of their complexity, are at greater risk to be overlooked in a complicated and/or high net worth divorce.
If you are going through a complicated Florida divorce, then you should have a Board Certified Family and Marital Law attorney educate you regarding potential tax implications and/or pitfalls that you may encounter in your divorce.
If your situation meets the following criteria, you are likely looking at a simple divorce and fairly straight-forward divorce process:
- You have been married for less than 10 years
- You have no children from this marriage
- Neither party will receive spousal support
- There are no pension, stock options or business interests
- Your net estate value is less than $100,000
However, if any of above criteria do not apply, then you should be concerned about the application of tax laws to the various issues in your divorce case. Those tax challenges may include:
Alimony. Generally, the spouse paying alimony can deduct the amount paid from their taxes, while the spouse receiving alimony must include it their taxable income. This boost or reduction in income can put the individual into a higher or lower tax bracket. The individual receiving alimony needs to consider the tax implications when formulating their budget. They will need to receive more than they actually need so the post-tax amount meets their calculations. Additionally, the type of alimony will affect the tax implications. Be sure to discuss this issue with your lawyer before structuring any type of settlement. Also, you should pay particular attention to the number of years and the amount you pay in each of those years. Failing to do so may activate the alimony recapture law which will negate any alimony deductions that you had planned to receive as a result of your divorce settlement.
Note: In contrast to alimony, child support payments received or made generally do not have any impact on taxes.
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Retirement Accounts. Retirement accounts, such as an IRA, typically have a deferred tax liability. The funds are taxed when you withdraw and receive them This future tax liability should be considered when determining equitable division of the asset.
Assets that may have increased in value. Assets such as real estate, stock investments or artwork, which have grown in value, may be subject to capital gains taxes at the point you opt to sell them. Such potential taxes should be considered when negotiating your property settlement.
Payments made by your spouse to third parties. If, per your divorce settlement, your spouse makes payments to third parties on your behalf, they could be considered taxable income that you are required to report. This includes a situation where you retain possession of the marital home and your spouse makes mortgage payments to the mortgage-holder. Those payments may be treated as taxable income.
Business Interests. Business interests created or which have increased in value during the marriage add to the complexity of a divorce and can have significant tax implications. The impact of these taxes varies depending on how the entity is structured (S-Corp, C-Corp, Partnership, etc.) Make sure you understand the tax implications for any proposal of settlement regarding your particular business interest before entering into a marital settlement agreement.
Achieving a fair equitable division of assets in a divorce case requires the consideration of potential present and future tax implications. The more complicated your divorce is, the more taxes may become a key issue. Be sure this issue is something that both you and your qualified Board Certified Marital and Family Law attorney thoroughly explore and consider.
Board Certified Marital and Family Law Attorney Charles D. Jamieson understands that divorce is an extremely sensitive and important issue. Thanks to extensive experience and a focus on open communication, Attorney Jamieson adeptly addresses the complex issues surrounding divorce while delivering excellent personal service. To discuss issues concerning your potential divorce, please contact The Law Firm of Charles D. Jamieson, P.A. online or call 561-478-0312 to schedule a consultation.