Divorce can have an impact on taxes

On behalf of Law Offices of KML Associates, Attorneys at Law, Karen M. Lavin, Attorney at Law

Divorce usually has financial implications for both parties, not the least of which is the impact on a party’s personal tax situation. If someone has recently undergone a divorce in Illinois, there are a few things he or she should keep in mind in order to avoid paying more taxes than absolutely necessary.

First, anyone who divorced prior to January 1 should remember to file as a single person. This may be easy to forget for a person who is used to filing jointly, but it is a simple thing that can save money. But on the other hand, a newly single custodial parent should file as head of household, as this status provides even more advantages for a single person than does filing as single.

Second, make sure to properly classify alimony payments. Alimony payments are generally deductible as a loss for the payor, the person paying, but they count as income for the payee, the person collecting. Moreover, do not confuse property settlements with alimony payments. Alimony is something that is paid for support on a regular basis after the end of a marriage. Property settlements are an equitable division of the property that was jointly owned by the couple during the marriage.

Furthermore, the IRS strictly classifies some types of payments as alimony and other types as not. For example, alimony generally has to be money. The parties should discuss the manner of alimony payment and its potential tax consequences with an attorney when negotiating divorce terms.

Third, remember that child support payments are not deductable or taxable as income. While alimony may be deductable or taxable, depending on who is receiving and paying, child support payments should have no bearing on tax payments.

Source: Chicago Tribune, “Taxes and divorce: 6 tips for women,” Kerry Hannon, Mar. 7, 2013.

See the original article here:
Divorce can have an impact on taxes