Like other New Hampshire residents involved in a divorce, you may struggle to keep track of all the issues that you need to address. Some of those issues include property division, child custody and support. As you work through these issues, there is another aspect to each that you may want to consider -- taxes.
Many people fail to consider the tax issues involved in their divorces unless it happens to be close to tax time. When it does come time to prepare their tax returns, they could discover that they should have discussed the issue when they negotiated their divorce settlements. With a little planning and some additional advice, you could deal with how taxes will affect your decisions in order to avoid paying the price later.
What areas of the settlement do taxes affect?
You may end up surprised by just how many of the decisions you make during a divorce come with a tax consequence. Some of the most popular include the following:
- Did you agree to sell the family home as part of the divorce? You may be able to avoid any tax liability on all or a portion of the proceeds.
- Did you agree to split up funds from a 401(k)? In order to make sure that you don't pay a penalty or other taxes on the transfer of funds from the account, you need a qualified domestic relations order. Without a QDRO, your windfall from the account could place a heavy tax burden on you.
- You could incur tax liability for the transfer of other assets as well.
- The parent paying child support may not deduct those payments on his or her taxes. The parent receiving those payments does not have to claim them as income.
- The spouse paying alimony may be able to deduct those payments on his or her taxes if properly addressed in the settlement. The spouse receiving those payments does have to claim them as income.
- Ordinarily, the parent considered the custodial parent may claim the child on his or her taxes. However, if you and the other parent come to some other agreement, it may work as long as both of you do not attempt to claim the child. It could be a good idea to obtain a waiver from the custodial parent to ensure that the IRS does not kick back the return of the non-custodial parent.
- Did you agree to continue paying all medical expenses for the child? If so, you may be able to deduct those expenses on your taxes even if you aren't the custodial parent.
In order to help ensure that your settlement remains fair and equitable, you and the other party may want to consider tax issues as you negotiate your settlement.
Seek support in making good decisions
The courts encourage couples to work out their divorce issues on their own, but that does not mean that you have to do it without legal support. This only means that you handle the negotiations outside the courtroom. In order to make sure that your rights remain protected, you may seek experienced support.