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Taxes can become complicated when people get divorced

Taxes-can-get-complicated-with-divorceDivorce can involve a number of difficult issues, including child custody, support and alimony. But one thing a lot of people don’t realize is that taxes can also become very complicated when people get divorced. That’s why it’s always a good idea to seek advice from an attorney or other professional if you’ve recently split up. Even if you’ve always done your taxes by yourself, there are a lot of tricky issues after a divorce, and it’s easy to make a costly mistake.
For instance, a key question is whether to file a joint return or separate returns. If your divorce has become final by December 31 of a given year, the IRS considers you as single for that entire year, and you can’t file a joint return. But if your divorce isn’t final on December 31, you can still file jointly – even if you officially divorce well before taxes are due on April 15.
Filing jointly can often save taxes, but if you’re expecting a refund, you’ll have to work out who will receive it and how it will be split. On the other hand, just because you can file jointly doesn’t mean you have to. You might want to have your taxes prepared both ways to see which is more advantageous for you.
If your spouse would prepare a joint return, and you have any reason to suspect that he or she might not be completely honest, you should definitely speak with your attorney about this. If you sign a joint return, you could in some cases be held legally responsible for any misrepresentations.
Here are some other difficult tax issues that can arise at divorce:

  • If parents have joint custody, it’s not always clear which parent is entitled to the various child-related tax benefits, such as the dependent child exemption, the tax credit for a dependent child, the dependent care credit, and the earned income tax credit.
  • If a couple divides assets at divorce that have appreciated in value, such as stocks, and the assets are later sold, there can be issues as to who has to pay the capital gains tax and how much is owed. If a home is sold at divorce, there can also be capital gains issues. You should be aware that if you pay attorney fees relating to dividing capital assets in a divorce, in some cases the amount of the fees can be added to the property’s tax basis, thus reducing the tax.
  • Speaking of attorney fees, these generally aren’t deductible in a divorce, but in some cases they are, such as if you pay attorney fees for tax advice or to enforce an alimony obligation against a spouse who has fallen behind in his or her payments.
  • Alimony is deductible, but you need to be careful because it’s not always clear whether certain types of payments made after divorce are considered alimony or simply a delayed part of a property settlement.
  • If one spouse is not a U.S. citizen, then payments made at divorce may be subject to gift tax.

Of course, taxes can be very complicated even without a divorce. But if you’re getting divorced, it’s wise to talk with a lawyer or other professional to make sure you’re doing everything correctly, and to take advantage of any savings to which you might be entitled.



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