Divorce is a costly matter that can take a toll on the emotions and bank accounts of both parties. You're retrieving records, compiling statements, and building your case for months, if not years. There are so many nitty gritty details, costs, and issues that come with divorce that one significant element is often left out of the equation: Taxes.
While taxes are often overlooked, they're also one of the most important financial factors that should be brought to the forefront as you undergo your divorce. In a recent tax tip posting from the IRS, the government helped to clarify some of the items that will and won't be taxed if you're going through a divorce.
Here's a synopsis:
- Alimony. If you receive alimony, you will need to claim this additional income, as it is taxable. Tax withholdings are not typically incorporated into alimony agreements, so you may want to increase your tax contributions to avoid a penalty at the end of the year. By estimating your tax payments ahead of time, you can get a better understanding of the taxes you need to withhold in order to break even at year-end.
- Child Support. If you receive child support payments as a part of your custody agreement, this money is not taxable, nor can you deduct it from your taxes.
- Alimony Paid. If you're paying alimony to a former spouse as part of a separation or divorce decree, you can deduct these payments, whether you itemize your deductions or not. You'll need to have your former spouse's SSN or TIN available when you fill out your Form 1040 if you wish to claim these deductions. If you send your former spouse alimony payments outside of your separation or divorce orders, this money cannot be deducted.
- IRA Contributions. If you've made contributions to your former spouse's traditional IRA but receive notice of final decree of divorce or separation before December 31st of that year, you cannot deduct those contributions. You may still be able to deduct contributions you've made to your own traditional IRA.
Going through a divorce isn't something you're likely to want to do alone. The amount of coordination and detail that goes into each divorce can be overwhelming for anyone, but an experienced divorce lawyer can help you navigate the process. Contact a family law attorney at Weinman & Associates who can help you understand all of the financial impacts of divorce, including tax consequences.