Tax Issues in Divorce
Divorce is a complicated process in almost all circumstances. One of the matters that must be dealt with in divorce are the tax implications. Because there are so many variables, it is wise to work with a Bryan divorce lawyer.
Division of Property and Taxation
Texas is one of ten states that has a community property law. This means that any assets or debts accumulated during the marriage are shared jointly. While there is no state tax in Texas, this has implications for federal taxes. Therefore, if as a couple you owe federal taxes, this is a shared liability.
When dividing assets, generally you can do so without having to pay any federal income or gift tax. That said, when one of the parties acquires an asset, such as stocks, that person becomes responsible for the taxes on the item, whether it be for a short- or long-term holding period. As an example, suppose one party assumes ownership of the family home, and the other party in turn acquires the family business. From the point of the divorce onward each party is responsible for the taxes owed on whichever item they acquired.
Taxes on Portions of a Retirement Account
IRAs and other retirement accounts that carry a tax advantage are not automatically exempt from taxation. You need to speak to your attorney about ways to avoid tax. In some cases, such as 401(k) plans, you must have a Qualified Domestic Relations Order (QDRO).
Taxes on Spousal and Child Support
It is important to keep in mind that any child or spousal support payments received after the divorce are subject to federal taxes. For the party paying the support, it is deductible from his taxes.
How to File in the Year of the Divorce
If as a married couple you have always filed jointly, you need to keep in mind that you may do so during a divorce only if the marriage is still in effect and both of you agree to this. If as of December 31, however, the divorce is final, you cannot file a joint return.
Work with an Attorney
The tax implications of a divorce can be very complicated, particularly if significant assets are involved. It is very important that you hire a knowledgeable and experienced Brian divorce lawyer who can help protect your interests. Call Peterson Law Group today at 979-703-7014 or 936-337-4681.