Divorce is undoubtedly one of the most stressful times in a person’s life. Just as stressful is the financial impact and the changes to one’s tax structure. Experts recommend early preparation for adapting to those changes. In California and other states, payments for alimony and child support should be structured in a tax-savvy way.
New tax reform bills will take away any income deductions for alimony, making it the same as other divorce-related disbursements. An individual going through a divorce should make sure that the divorce decree takes into consideration the tax impacts and states the nature of the payments explicitly. Owning a home together is another added complication for couples to contend with. Deciding to sell the property will qualify both parties for capital gains exclusion, but there is a two-year residency rule.
Many divorced couples are surprised that they are required to change their filing status. Eligibility for filing status is determined by one’s marital status on the last day of the year regardless of when the divorce was finalized. Changes in filing status to single means an increase in taxes paid, but one may qualify for the coveted head of household status and other key tax breaks.
Before, during and after a divorce are traumatic times for couples to go through. Under the blanket of worry and stress, it is hard to think about taxes, but taking steps to protect one’s new financial life is crucial. In California, those with questions and concerns about divorce and alimony may benefit from the expertise of an incisive attorney.
Source: fool.com, “5 Tax Moves to Make Now If You Just Got (or Are Getting) Divorced — The Motley Fool”, Dan Caplinger, Accessed on Jan. 8, 2018