When a man or a father in New Jersey is going through a divorce, there are a myriad number of things they are thinking about: Custody, spousal support, dividing assets equitably, what to do about the marital home.
What often gets overlooked in the process are the tax consequences and the options available for you to consider as part of your divorce.
For example, when splitting up with your spouse, if you still are legally married on Dec.31, you can opt for filing separately or jointly. Likewise, a father may claim the children as dependents if they lived with you for more than half the year.
While this blog shouldn’t be considered the definitive word about the tax consequences of your divorce – and you should always consult a tax accountant to discuss the specifics of your situation – it will give you a broad overview of some of the key things to consider.
Taxes = Complicated Rules
With more than 2,500 pages, the United States Tax Code is unbelievably complex. So, it is vital to understand the tax ramifications of your divorce so there are no surprises after your divorce is final and a judge has signed off on all of the issues.
The most beneficial filing status often hinges on the amount of tax you owe or the refund you have coming. For example, if filing jointly with your spouse, you will be held liable for all of the taxes due to the IRS and state of New Jersey – even if she earned more than you but didn’t pay the tax bill on April 15.
If you are paying spousal support as part of a formal separation or it is provided for in the final settlement agreement, in most instances you may deduct the amount you’ve paid to her. She is responsible for declaring the payments as part of her income. On the other hand, generally child support is not deductible by you nor taxable to your ex because the payments are considered to be made on behalf of the children. Unless the kids are actors receiving fees for appearing in a production, ad or commercial, chances are they do not need to file taxes.
Claiming Deductions and Exemptions
More nettlesome is the issue of whether you can claim the children as an exemption. If one person is the custodial parent and the kids live with them for nearly all of the year, there is no question but that parent can claim the exemption.
On the other hand, if there is shared custody and the children will be dividing their time more-or-less equally between mom and dad, who will claim the exemption needs to be added to the list of items to be negotiated as part of the marital settlement agreement.
Another factor to be considered – and where the advice of a qualified tax advisor is necessary – is whether the legal fees you pay to your attorney handling your divorce will be deductible.
While many of these factors were straight-forward line item entries on your return when you were married and living together, they loom large as important factors as you separate and move towards a final divorce.
High Net Worth Marital Estates
For men and fathers in New Jersey who have a high value marital estate, we will refer you to qualified tax experts so that you will understand all of the ramifications of your divorce. Then, we work with these advisors closely to optimize dividing marital property.
For instance, property that is transferred from one spouse to another at the time of a divorce does not usually trigger a tax liability. But if the asset is sold after the divorce, the capital gain becomes taxable to the person who owns the asset and they are responsible for paying whatever is owed to Washington and Trenton.
If you have any questions about tax considerations to take into account as you are going through your divorce, feel free to call any of the family law and divorce lawyers for men and fathers in New Jersey. We’ll answer your questions or, if they are highly specialized, refer you to an expert who can answer them.
Questions about divorce and taxes? Reach us at either 973.562.0100 in Nutley or, in Montclair, at 862.245.4620.
