For most men and fathers starting the divorce process in New Jersey, the impact on their tax returns next April of leaving their spouse is likely to be one of the last things on their mind. In a way, it stands to reason that a more pressing matter would be custody and visitation schedules regarding the children and the size and scope of the property settlement.
Still, there are tax considerations that need to be taken into account fairly early on after starting the process.
The reason for this is that the Internal Revenue Code is incredibly complicated – all 7,000 pages of it. So it is important to understand the current and future ramifications of decisions you need to be making today.
From Simple to Complicated Tax Issues in a Divorce
Some of the tax issues are relatively easy to deal with. For example, if your divorce has not been finalized on December 31, you and your soon-to-be ex may file jointly or separately. The decision can be based solely on what provides the greatest tax advantage to you.
But other questions have a more complicated answer …
- Which parent is going to claim the children as exemptions? Usually this is the custodial parent but there are some exceptions that need to be reviewed with a tax expert
- Whether child support payments are taxable to the parent receiving them?
- Will spousal support payments be tax deductible to the person making them?
- Are your legal fees from obtaining the divorce going to be tax deductible?
We can incorporate the question of whether you can claim your children as exemptions on your return in the settlement agreement. But with a handful of rare exceptions, child support is not considered taxable income to the parent receiving it nor is it a deductible expense for the parent who is writing the check.
However, payments to your spouse that qualify as maintenance, whether spelled out in a settlement or ordered by a court, are taxable to your ex-wife and deductible by you.
And while the cost of your lawyer probably is not a deductible expense, fees that are charged by a tax expert are.
High Income and Net Worth Divorces
There are unique issues that men with a high income or who have acquired unusual assets such as valuable art or antiques, or have accumulated a high net worth need to think about.
For openers, we will refer you to lawyers and accountants who are tax experts. They will be able to help us optimize those aspects of the divorce that relate to dividing property. As a general rule, property that is transferred between spouses at the time of a divorce is not considered a taxable event. But if either you or your ex-spouse sell the asset, all or part of the proceeds are likely to be considered taxable.
If you or someone you know is a man or father in New Jersey who is contemplating divorcing their wife, we are happy to answer any questions you might have on everything from custody to property settlements and the downstream tax consequences of the divorce. Feel free to call me or any of the family lawyers for men and fathers in our firm at either 973.562.0100 in Nutley or, in Montclair, at 862.245.4620.
