Lawyers Discuss Illinois Divorce and Tax Issues
Chicago Attorneys to Guide You Through Tax Matters
One aspect of divorce that doesn’t get much attention is how it affects your taxes. With new tax laws going into effect and uncertainties on how individuals and small businesses will be affected, this will be a challenging time for couples going through a divorce. Considering this, it’s more important than ever to have a divorce attorney who understands the tax implications of a divorce.
What You Need to Know Prior to Your Divorce
Many people wait until it’s time to file their taxes, well after their divorce has been finalized, before starting to wonder what the end of their marriage will mean for their tax returns. By then, it’s way too late to do anything to protect yourself from an unexpectedly heavy tax burden.
This is why you should take your tax situation into account throughout the divorce process. A good Chicago divorce attorney will advise you on how to arrange your separation in the most advantageous ways possible.
For example, many spouses try to hide some of their assets from being discovered during a divorce. This can include real estate, pension plans, investments, and inheritances. A thorough investigation of your spouse’s finances will reveal many of the assets he or she didn’t want to divulge, which will allow for a more equitable split.
Another factor is timing your divorce to match up in the most beneficial way with your tax situation. Your marital status as of December 31st will determine how you need to file, so there may be a benefit to waiting until the next calendar year to finalize the divorce.
How Do Taxes Affect the Division of Property?
It’s only natural that spouses will focus on the assets when deciding who gets what, without considering the tax burden each item has. Two items of equal value may be taxed very differently, and if you fail to account for that during the division, one spouse could be burdened with heavier taxes.
Items like real estate, financial investments, and retirement accounts all carry different tax burdens. In addition, cashing out certain investments may initiate a tax payout. In particular, capital gains taxes should always be assessed when dividing assets.
Another factor is any joint debt that a couple has. You may think of the debt as being a negative value, but if it can be written off as an expense at tax time, some of that money will be recouped by the spouse who takes on the debt during the divorce settlement.
Child Support, Maintenance, and Taxes
The biggest question we get with regards to taxes and divorce has to do with child support and maintenance payments. The first thing you need to know: a parent is not able to claim child support payments as a deduction on tax returns, and the parent receiving the payments does not have to report child support as income on tax returns.
Other forms of child-related payment might be taxable or deductible. For example, a parent who pays for a child’s medical expenses is able to deduct those payments. This applies no matter who gets to claim the child as a dependent on his or her return. And unlike child support, maintenance is counted as income, and the spouse who pays maintenance gets to deduct it on his or her tax return.
A Lawyer Attorney Can Help
Navigating a divorce is never easy. That’s why everyone can benefit from the guidance of an experienced attorney. Nottage and Ward, LLP, focuses exclusively on family law, which is why we fully understand the tax implications of a divorce. Our experienced legal team can negotiate complex financial issues, and achieve the most beneficial outcome possible for our clients. Call us today at (312) 332-2915 to schedule a meeting with our family law lawyers.
- New Tax Law in Effect January 2019
- Divorce Tax Laws Are Changing
- What Information Is Disclosed In A Financial Affidavit?
- Resolving Tax Matters During Divorce Essential To Avoiding Problems After Divorce
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