Tax Consequences Of Divorce
The decisions you make in your divorce settlement can make a difference in your tax bill for years to come. To protect your financial future following a divorce, it is important to seek the advice of an experienced attorney.
At Manassa Hartman, P.C., our goal is to put you on the most solid financial foundation possible. Our lawyers understand the complex tax issues involved in divorce settlement agreements and can advise you every step of the way. With offices in Barrington, Crystal Lake, St. Charles, Oakbrook Terrace and Deerfield, we serve clients throughout the Chicago metropolitan area of Illinois. The following provides an overview of the tax implications of divorce.
Child support is not taxable to the recipient and is not tax deductible to the payer.
In Illinois, there are three types of spousal maintenance or alimony:
• Terminable maintenance, which is maintenance that ends on a certain date • Reviewable maintenance, also known as rehabilitative maintenance, which the court may review after a period of time to determine if the recipient still has a financial need and if the other party has the ability to pay • Permanent maintenance, which is maintenance that continues until the recipient begins living with another on a continuing conjugal basis All three types of spousal maintenance are taxable to the recipient and tax deductible to the payer. Alimony can be used strategically if one party has little or no income and the other has a high income.
When you provide a spouse with unallocated support, you do not tell the Internal Revenue Service which portion is child support and which is spousal maintenance. As a result, all unallocated support is treated as alimony, which means it is taxable to the recipient and tax deductible to the payer. Unallocated support can be used strategically to allow for lower tax consequences and to allow each party to benefit therefrom.
Marital Property Division
The division of marital property is not a taxable event.
Retirement accounts can be subject to a tax penalty if withdrawn early. To avoid a negative tax event, assets held in IRA and 401(k) accounts need to be divided by a properly drafted qualified domestic relations order.
Parents often agree to share the dependent exemption. Absent an agreement, the parent who the children live with the most and who pays the majority of their bills will get the exemption.
For More Information About Divorce And Taxes
For more information or to speak to one of our Barrington divorce attorneys in a free consultation, call 847-221-5511 or email us.
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