DIVORCE AND TAXES

The pending divorce of Brad Pitt and Angelina Jolie has captured media attention as their $400 million net worth poses serious tax, financial and legal issues. However, tax law consequences are not limited to celebrities and Texas couples at the end of a marriage should prepare to face many of these divorce issues.

The last date of the tax year determines filing status for federal income taxes. Individuals who are unmarried by the end of the year must file as single or head of a household. There are exceptions for widows, widowers, annulments and married persons who do not live together under specific circumstances.

Federal tax law also considers a couple who was legally separated as being single. But, Texas does not recognize legal separation.

An engagement ring’s original cost basis applies if the spouse who received the engagement ring, treated as the promise to marry, keeps it after divorce. If the ring is sold after divorce, any financial gain would be calculated at its selling price, minus the husband’s basis in the ring, which was considered a gift when it was given to the spouse.

Spousal support is taxable to the recipient as ordinary income. The spouse who pays alimony may deduct it, even if that spouse does not itemize deductions. Voluntary payments do not meet tax requirements for alimony and this support had to be part of a court order or approved settlement.

The couple cannot live together, unless through a court order. Alimony cannot be claimed as a deduction in a year that the couple filed a joint tax return.

Property division does not have tax consequences unless appreciable or taxable assets are sold. Exceptions also apply when assets are liquidated, such as a utilization of a qualified assets domestic relations order for retirement plans.

Child support is normally tax neutral. In other words, the recipient does not have to pay taxes on the support, and the payor cannot claim it as a deduction.

Many facets of a divorce can be complicated and have long-lasting consequences. Seeking the advice of an attorney can help lessen the financial impact and help financial planning.

2017-08-29T09:04:23+00:00 September 28th, 2016|Child Custody|