Tax Consequences of Divorce

Family Law Attorney Counseling Residents of Milwaukee and Surrounding Areas

When spouses are considering a divorce, taxes are often the last thing on their minds. Divorces are deeply personal and emotional events, and the routine obligations of our tax system rarely factor into decision-making. Unfortunately for many people, a failure to consider the tax consequences of decisions related to property division or child support payments may have a significant financial impact. While divorce alone may make paying the bills and meeting monthly obligations difficult, this is often more true when tax obligations enter the picture. At Reddin & Singer, LLP, Milwaukee divorce lawyer Terese J. Singer keeps apprised of changing tax laws and can advise you on an appropriate strategy for your needs and circumstances.

Child Support, Maintenance, and Taxes

When working through divorce arrangements, many couples think of maintenance and child support as similar concepts. Both are payments from one spouse to the other, made in order to support children or a spouse. While this is true, the tax consequences of these two payments are vastly different. In Wisconsin and under federal law, child support payments are not taxed. Likewise, the parent making the child support payments may not claim a deduction for such payments on their tax return. In contrast, alimony payments are treated as taxable income, and the spouse receiving alimony will be required to pay taxes on the amount received. Similarly, the spouse paying the maintenance payments may receive a tax deduction for them.

Any property that is exchanged between the spouses in a direct transfer during a divorce is not subject to taxation. Many spouses do not realize the tax obligations of the various payments that they may receive or make, and it may be important to include information concerning these obligations in the divorce paperwork.

Determining Deductions After a Divorce

When a couple is married, there are many important tax deductions that may be taken on their tax returns. These include items like mortgage interest, head of household status, and credits for having dependent children. After a divorce, these tax deductions and credits may continue to exist, but it may be very unclear which former spouse is entitled to claim them. In order to avoid future disputes or complexities down the road, it is important that they be addressed in any divorce settlement or final decree.

Generally, under IRS regulations, a child must live with a parent for more than half of the year in order for the parent to qualify for head of household status on tax returns. Similarly, when dealing with credits for dependent children, these will usually be awarded to the parent who has primary custody of the child. However, the IRS does not require that this is the case, and spouses may be able to use dependent child credits as a negotiating tool during a divorce. In either event, the individual who will claim the credit should be clearly set forth in the provisions for the divorce. The parent who does not claim this credit will be required to complete IRS tax forms releasing their claim to an exemption. If both parents attempt to claim a child, it increases the risk that they will be audited or have their tax papers returned.

Contact a Knowledgeable Milwaukee Lawyer During a Divorce Proceeding

Understanding the tax consequences of your divorce may go a long way toward easing the transition from married to single. It may ensure that both parties start out on the same page and with the same understanding of the impact that the divorce will have on their lives. If you are dealing with complicated taxation questions, significant maintenance payments, or concerns about various assets, speaking with a family law attorney prior to finalizing your divorce may be immensely helpful. At Reddin & Singer, LLP, Milwaukee divorce attorney Terese J. Singer can answer your questions about divorce, taxation, and protecting your assets. Contact our office for more information at (414) 271-6400 or by using our online form to set up a free appointment. We can assist people in Milwaukee, Mequon, Racine, West Bend, Waukesha, and other communities in Racine, Washington, Milwaukee, Ozaukee, and Waukesha Counties.