Tax and Financial Aspects of Divorce

There are many tax issues that arise during the context of a divorce and our attorneys identify and analyze these issues to minimize the effect it may have. These include determining the responsibility between spouses for tax payments, allocating tax refunds, determining the net after-tax value of certain marital assets being distributed, determining the tax impact of certain types of support payments, and determining the tax impact of certain counsel fee payments.

The question often arises as to whether or not to file a joint tax return with your divorcing spouse. One spouse may provide false information on a joint return or omit reporting income. If you sign a joint tax return with your spouse, each of you may be held liable for the taxes due. We frequently analyze the issue of whether to file jointly, and negotiate and draft tax indemnification agreements before joint tax returns are executed. We also negotiate the allocation of tax liability between spouses and the allocation of tax refunds.

Certain types of assets include deferred taxes. For example, distributions from a traditional IRA will generally be taxed in the future when the payment is made and at the tax rate of the owner at the time the payment is made. If the IRA is distributed to one of the parties in the divorce, failure to consider the net value of the IRA after considering the future tax consequences may be unfair to the recipient. Our lawyers identify and analyze these tax issues in the context of property distribution.

Spousal support, alimony issues, and custody

Spousal support, alimony pendente lite, and alimony may be taxable to the recipient spouse and deductible from the income of the payor spouse if various I.R.S. requirements are met. Child support payments are not deductible from the income of the payor spouse or taxable to the recipient spouse unless included as an unallocated amount along with spousal support or alimony pendente lite. However, spouses may elect not to make any of these payments taxable. There are technical requirements imposed by the I.R.S. with regard to deductibility and our lawyers help you navigate these rules.

The custodial parent will generally be entitled to claim the dependency exemption on his or her tax return. The custodial parent may release the exemption to the other parent by executing an I.R.S. form. We frequently negotiate who will be entitled to claim a dependency exemption and under what circumstances.

Counsel fees paid by you in connection with the production of income, such as fees to obtain spousal support and alimony orders, are tax deductible. Counsel fees paid for tax advice are also tax deductible. At Strassburger McKenna Gutnick & Gefsky, we help identify those fees that you may deduct if you file an individual tax return. Contact Reid B Roberts at rroberts@smgglaw.com today to schedule an appointment.