When going through a divorce, you have several things to consider that can affect your life for years to come. Not only are you having to determine things like where your children will spend their time and what types of properties you and your spouse will split, but you also have to deal with the emotional fallout related to divorce and living in a different way than you have previously.
Another major factor of divorce involves the financial implications. In the short term, you may be paying – or receiving – child support or alimony. You may suddenly need to begin working. There may be long-term changes, too. You may be wondering, does getting divorced affect your taxes? At The Cossitt Law Firm, we know all about the tax implications of divorce, and we can help you understand them and work through them. For a meeting with our Colorado divorce lawyers, contact us as soon as possible.
Before we begin discussing some of the tax implications of a divorce settlement, we must mention that if you require specific tax advice, you should seek out a tax attorney, CPA, or another tax expert. The Cossitt Law Firm focuses on family law case resolution. We do not advise clients as to issues that require a legal opinion on any tax issue. However, we will provide some general information here that can help you start to understand the tax implications of getting divorced.
Whether money paid as spousal support is taxable depends on whether you are receiving or paying the money.
According to the Internal Revenue Service, certain circumstances regarding these payments keep them from affecting either spouse’s taxable income, including:
If you are making child support payments as part of a divorce settlement, they are not tax deductible. The parent who is receiving the child support payments does not have to record these as income for taxation purposes, either. The tax code considers child support payments as tax neutral.
Colorado Revised Statutes Section 14-10-115 (12) gives the two parents the ability to claim the children as dependents based on the proportion of each parent’s financial contribution toward raising the children. Should one parent contribute $30,000 toward raising the kids, while the other parent contributes $20,000, the first parent can claim 60% of the benefits of having the children as dependents, while the second parent can receive 40% of the benefits of the dependents.
This is a potentially confusing situation, and we would recommend discussing the situation with a tax professional before completing your taxes.
Additionally, Colorado law requires that if one parent is not current on making court-ordered child support payments at the end of a tax year, the parent who is behind on child support payments is not able to claim any benefit from having the children as dependents.
To meet with our divorce attorneys, contact us today. At The Cossitt Law Firm, we will put our experience to work for you.
Certain tax deductions are available for those going through a divorce. For example, if you seek tax advice regarding your new tax filing status after the divorce, you typically can attempt to deduct any fees you pay. Additionally, fees paid for appraisals, actuaries, and accountants in connection with determining spousal support and alimony in the divorce settlement also potentially can be part of your tax deductions. Of course, you would need to qualify for these deductions through the normal filing of your taxes. If you take the standard deduction, for example, you may not be able to claim these deductions.
Unfortunately, any attorney’s fees you paid to obtain and settle your divorce are not tax deductible.
If you must cash out part of a 401(k) account or another retirement account to satisfy a division of assets, you usually can do so without early withdrawal tax penalties, as long as the court orders this action. If you try to withdraw retirement account money to satisfy a financial settlement in divorce without a court order, though, the withdrawal may be subject to tax penalties.
Because the married filing jointly status tends to provide the biggest income tax benefit for people, you and your spouse may want to continue to file your taxes jointly after the divorce. However, the actual date of the divorce will affect the marital status used when you and your spouse file your taxes.
If your divorce became final on Jan. 1 or later, it is important to make sure that you and your spouse are both filing the same way for the previous tax year. If you file married filing separately and your spouse files married filing jointly, this will create a red flag at the IRS offices, calling your tax returns into question.
Even if you have the ability to use the married filing jointly status with your ex-spouse, you may not want to do this. If you have concerns about whether your spouse will be honest about income, you may want to file separately, even though this may cause a higher tax bill than you could have by filing jointly. If you file jointly, you are both liable for any incorrect information on the tax return.
If you want to learn more about divorce and taxes, contact us today and schedule a time to discuss your concerns with one of our Fort Collins divorce attorneys.
At The Cossitt Law Firm, our team handles all aspects of divorce, giving us insight into how to handle difficult situations our clients are facing. Tom Cossitt works hard to balance the complexities of divorce with the difficult emotions this process brings to the forefront. Our entire team understands that each family has unique aspects to its divorce proceedings. By focusing on these items, we are able to treat your case with the utmost professionalism and care.
When you want to determine exactly how getting divorced affects your taxes, we are ready to help. Call The Cossitt Law Firm today.
If you have decided to get a divorce, the next steps can seem daunting. Here we provide a few answers to common questions about filing for divorce.
Depending on your family, financial, and personal circumstances there are many factors you will want to consider when filing for divorce. Find out what type of divorce is right for you.
How long will it take for the Court to issue a Decree of Dissolution of Marriage? The earliest a Colorado court could issues the divorce decree is 91 days after the petition was filed. However it can take longer than 91 days, as expert valuations and reports may be needed.
How can a divorce attorney help with an uncontested divorce? Uncontested divorce generally means the parties have agreed upon all issues, or they believe they will be able to easily agree on all issues. A divorce attorney can help with an uncontested divorce by ensuring everything drafted properly.
What are mandatory financial disclosures? Financial disclosures are required of both parties in every divorce case, within the first 45 days after the petition has been filed. The exchange of mandatory financial disclosures is intended to put each party on a level playing field as it relates to the finances of the divorce.
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