DuPage County Divorce Tax Consequences Attorneys
Experienced Guidance with Divorce Tax Issues in Lisle, Naperville and Downers Grove
When couples divorce, they often fail to take the tax consequences into account. With emotions running high and spirited debates about child support, child custody, alimony/maintenance, division of property and other issues, the impact of the divorce on the tax situations of each spouse can get lost in the shuffle. The truth is that taxes are a major issue and failure to address divorce tax consequences can turn what appeared to be a favorable settlement into a financial nightmare.
At Momkus McCluskey LLC, our divorce and family law attorneys have in-depth knowledge of divorce tax consequences and how they can impact spouses in varying situations. Our family law group handles even the most complex divorces; often involving couples with a high net worth, family owned businesses and many similarly complicated issues. We work closely with our clients to understand the big picture and particularly the tax ramifications of divorce so we can negotiate a settlement that addresses your needs and avoids conflict with the IRS.
Divorce Tax Consequences during a Pending Case
Most divorces take at least several months to complete. In the meantime, spouses can encounter several tax challenges. Before the final decree is issued, you generally have three options for your tax filing status:
- Married Filing Jointly;
- Married Filing Separately; or
- Single Head of Household (must meet certain qualifications).
It is in the best financial interests of both spouses to work together during divorce to minimize tax liability. In many cases, this means continuing to choose “Married Filing Jointly” as your tax status. There are cases, however, when filing separately might make sense. Also, there are other cases when filing jointly is the best plan, but one spouse refuses to cooperate or refuses to sign the joint return until they get what they want in the settlement. When such challenges arise, our attorneys can develop alternative strategies to overcome the tax impact of an uncooperative spouse.
Itemized Deductions during a Pending Case
If couples opt for “Married Filing Separately,” the question often arises about who is allowed to claim which deductions. In general, the spouse who makes the payments is the one who receives the deduction. However, this only applies to property that is owned by both spouses, such as a jointly titled house. For payments on a solely owned property or in cases with divorce and retirement accounts, the owner of the property or account receives the deduction regardless of who makes the payments.
Spousal Maintenance and Child Support
Alimony or maintenance payments can carry negative tax consequences for the payee. For example, if a divorced spouse earns $45,000 per year working and receives an additional $45,000 per year in alimony or maintenance payments, their income is doubled and they are likely to be thrown into a higher tax bracket. On top of that, taxes are not withheld on alimony payments, so it is up to the individual payee to pay the IRS upon filing tax returns. The challenge is that many divorced spouses do not realize this until it comes time to do their taxes and they have not saved any money to pay their unforeseen tax bill. Careful planning is needed to avoid these kinds of situations.
Child support is an entirely different matter; it is not considered income by the recipient and cannot be deducted by the paying spouse. So for all intents and purposes, child support has no impact on the tax situations of either spouse after a divorce.
Tax Consequences of Property Settlements
Transfers of assets during a divorce from one spouse to another as part of the settlement are considered non-taxable events by the IRS. However, when you start to get into complex and hard-to-value assets such as family owned businesses, there may be deeper tax consequences to address. Our attorneys have vast experience with tax and business law. We thoroughly analyze the assets involved so we can address more advanced tax considerations such as carry forwards, short-term and long-term capital gains, reducing the basis of an asset and many others. This helps keep the tax liability exposure of our clients to a bare minimum.
If you are going through a divorce, it is important to consider all the tax ramifications to ensure that you will be in the best financial position possible once it is finalized. For a consultation with an experienced Illinois divorce tax consequences lawyer, contact Momkus McCluskey LLC today at (630) 434-0400. We provide advice and counsel from our team of skilled and compassionate divorce attorneys in DuPage County including Lisle, Naperville, Downers Grove and surrounding communities.