Most couples going through a divorce are motivated to complete the process as quickly as possible. This mentality, however, can lead to short-term thinking when long-term consequences should be considered when entering into a divorce settlement agreement. One often overlooked component of a divorce settlement is the tax implications that may arise due to the division of marital property, and payment of alimony and child support. Marital property is almost anything acquired by the parties during the course of the marriage—income, assets, real property, stocks, bonds, accounts, retirement savings, and physical items, regardless of whose name such property is titled or held. While the actual receipt or transfer of assets as part of a divorce is generally not taxable, if handled properly, certain tax considerations may arise going forward as a result of receiving or transferring certain assets, which might not be fully appreciated or understood at the time the assets are received or transferred. In addition, both alimony and child support are treated differently for tax purposes, further complicating the tax implications of a divorce. Understanding how these tax consequences work in Central New Jersey with the guidance of an experienced divorce lawyer can help you with your divorce settlement significantly.
Tax Concerns and Considerations
Filing Status
First, and perhaps most obviously, consider the implications of the tax year. Tax exemptions are decided through the last day of the taxable year; that is, if you and your spouse were to get divorced in June 2016, even though you were married for the first six months of the year, you would be considered “unmarried” for the purposes of filing your 2016 year taxes. As a result, you would need to decide how to divide up exemptions and deductions as part of your divorce.
Child Custody and Support
This consideration also applies when considering children, because only one parent can claim a child as a dependent in a given tax year. If the parties have an equal number of children, it is not uncommon for them to each claim a child, but this obviously cannot happen if the parties have an odd number of children, or after one of the children becomes emancipated. Such considerations also must be addressed to avoid confusion and complications after a divorce is concluded. In addition, unlike alimony, as discussed below, child support is not taxable to the recipient and not deductible by the payer.
Alimony and Spousal Support
In New Jersey, spousal support is generally referred to as alimony. The award of alimony can also have significant tax consequences. Generally, alimony is taxable to the recipient and deductible by the payer. Nevertheless, in certain circumstances, this arrangement can be modified to help balance out some of the inequity that may result from significant maintenance payments.
Real Property and other Marital Assets
There are (lawful) ways of dividing all forms of property, whether it be real property, assets, income, or retirement accounts, without running afoul of tax laws or incurring unnecessary tax penalties. These methods can be accomplished by utilizing experienced divorce attorneys that understand the importance of accurate valuation of assets, the necessity of thinking ahead to future tax consequences, and the need to ensure that you receive as much as possible in your divorce settlement, while still protecting what is rightfully yours.
Contact an Experienced Central New Jersey Divorce Lawyer
Hiring a knowledgeable New Jersey divorce lawyer is the first step in ensuring that your legal rights are protected and that you acquire or retain what you deserve out of your divorce settlement. Attorney Steven M. Cytryn of The Law Office of Steven M. Cytryn knows how to see the big picture and advise you as to the possible tax benefits or detriments resulting from your proposed settlement arrangement. With experience in all areas of family law, Mr. Cytryn knows how to help families with high asset divorce, divorce involving children, uncontested divorce, and highly-disputed divorces. Regardless of your unique situation, contact Mr. Cytryn today to take the first steps toward coming to an amiable, but favorable, divorce settlement.
