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Tax Issues

Tax Issues of a Divorce

There are significant and complicated tax issues that may arise during a divorce. Some of the matters that may be significantly affected by taxes include child support, child custody, maintenance, division of property, and the preservation of marital assets.

One common concern is what your filing status should be for the upcoming tax year. Typically, you will be able to file taxes with your spouse until the divorce is finalized. It is important to weigh the advantages and disadvantages of both “married filing jointly” and “married filing separately” based on the facts of your case. Another question that is frequently asked is how maintenance affects taxable income. Money received as maintenance is generally considered taxable income for the party that receives the support. The party that is paying the maintenance is able to deduct payments for spousal maintenance.

Is Child Support Taxed?

Child support is not considered taxable income, meaning it is not deductible for the party paying the child support. As a result, the spouse receiving the child support does not have to include it as income.

Another concern that tends to arise is who gets to claim dependency exemption for their children? Dependency exemption can be a complex issue and should be determined by your attorney on a case by case basis.

Taxation and High Net Worth Divorce?

You may have some questions about the effects of divorce on your tax liability. In a high net worth divorce, it is true that property distribution can appear to be unfair in specific situations. In strategizing for the distribution of property, the lawyers of Davis Freidman are capable of thinking critically about the taxes that may be associated with the distribution of various accounts or investments. This is important because there may be a variety of tax issues in a high asset divorce.

Dealing with taxes can be emotional and stressful during the already strenuous process of divorce. It is important to have an attorney that is well-experienced with the tax law to help secure your rights and make sure that your tax requirements are met.

Tax Filing Status and Claiming Children as Dependents

There are additional issues that affect an individual’s tax liabilities during a divorce. It is important to coordinate with your spouse/ex-spouse and discuss issues such as what your filing status will be.

If filing joint, it is important to consider the following: (1) will the tax return be split; (2) how will the tax return be split; (3) if taxes are owed, who will owe what amount on those taxes?

If filing separate, you may run into questions such as: (1) who will be entitled to claiming the children as dependents; (2) how child support obligations may sway those exemptions; (3) dividing an odd number of exemptions for dependents; (4) what deductions may be claimed by each party?

Additional concerns may include how to file if one party is not an Illinois resident during the tax period, or if you lived apart and shared no income. Another common question discusses the tax liability of a shared business or partnership after a divorce. Other inquiries are made on whether you can take deductions for legal fees related to advice on filing taxes during or after a divorce. Finally, concerns of whether indemnification protections are applicable during or after divorce proceedings if your spouse engages in any misconduct or false statements. Our Attorneys at Davis Friedman will help you weigh your options and consider your facts in order to decide the best way to meet your interests.

Have questions? Contact us about working together.

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