Divorce significantly affects your tax profile, from filing status to asset transfers. Early planning can prevent future surprises and reduce long-term tax burdens.
Key Issues to Consider
- Filing Status: Your marital status on December 31 determines your filing status for the year. Consider whether to file jointly or separately in your final married year.
- Dependency Exemptions: Only one parent can claim each child. Clarify in your judgment who gets to claim dependents and any conditions.
- Alimony and Child Support: Alimony is no longer deductible for payors (or taxable to recipients) under post-2018 agreements. Child support remains non-deductible.
- Division of Retirement Accounts: QDROs are required to divide employer-sponsored plans without penalties.
- Transfer of Property: Generally non-taxable during divorce, but future capital gains and basis must be addressed.
Tax-Aware Settlements
- Allocate assets with differing tax bases and future liability in mind
- Consider timing of asset sales to avoid capital gains
- Review business entity structures and tax elections
Working with a CPA ensures the financial terms of your divorce are structured tax-efficiently.