Tax Tips for Tennessee Divorcing Couples

The end of a marriage can raise many issues both emotional and financial. One matter that many couples may overlook during this process is how to handle tax during divorce; however, lack of planning could cause money problems down the road. If you are currently in the process of dissolving your marriage, you should work closely with a Memphisdivorce lawyer to take the proper steps to protect your finances. 

Filing Your Income Taxes

The IRS requires that individuals file their income taxes based on their marital status on December 31st; therefore, waiting for the divorce to be finalized after the New Year may be beneficial to some couples. Even if you were still married at the end of the year, you do have the option to file as “married filing separately.” If you are unsure of whether or not you should wait in order to take advantage of the tax breaks, consulting with a financial planner or CPA who understands how to handle tax issues during divorce is recommended. If you plan on divorcing before the end of the year, you will have the opportunity to file as a single head of household.

While filing as head of the household allows for better tax benefits, the following criteria must be met: 

• you haven’t lived with your ex-spouse in the past six months;
• you are eligible to claim exemptions for qualifying dependants (i.e., children);
• you owned the primary residence for your qualifying dependants; and
• you paid more than 50% of the upkeep on your home for at least six months.

Children and Tax during Divorce 

In a divorce settlement, the primary caregiver is named as the custodial parent, and the other parent is named as the non-custodial parent. In a tax situation, the custodial parent is allowed to claim the children for deduction purposes; however, if you are still going through the divorce process, you could make an agreement to split the exemptions. In some cases, the custodial parent can allow the non-custodial parent to make the claim if he or she will not benefit from claiming the exemption. 

Spousal Support

While child support is not subject to taxation, spousal support (or alimony) is. The individual who is receiving the payments is required to claim spousal support as income, while the paying spouse can deduct the payments from his or her taxes. Because spousal support can have an impact on your tax during divorce, speaking to a tax professional or Memphis divorce lawyer is recommended. 

Division of Assets

Dividing your assets can have an impact on your taxes during divorce. For example, if one spouse buys out the equity in the home, he or she can take the tax deductions for mortgage or property tax. However, you can arrange to split the deductions in half when you are still coming to an agreement on your divorce.

Precautions should be taken if you decide to liquidate any retirement plans, such as a 401k or IRA, as you will be required to pay a penalty tax in addition to income tax. It may be in your best interest to complete an order that divides the retirement plans where they can be accessed without penalty.

For more information, see Divorce and Taxes | Tennessee Divorce Law & Taxes Resources.

Contact a Memphis Divorce Lawyer

When you are ending your marriage, you probably have a lot more on your mind than taxes during divorce. For this reason, you need an experienced Memphis divorce lawyer on your side to offer advice on the many aspects of divorce. The Miles Mason Family Law Group is dedicated to protecting the emotional and financial best interests of their clients.