Many divorcing couples in the Dublin area focus so much on leaving their spouses that they fail to consider the impact their new relationship status can have on their taxes. All of the stress, anxiety and confusion you may feel can make it hard for you to keep sight of the overall picture and accept a settlement that has a major impact on your tax and financial situation once your divorce is final.
Though you might not want to focus on anything tax related, not doing so can put you at a severe disadvantage. Here are some key considerations to keep in mind about taxes when negotiating a divorce settlement.
Claiming dependents
Your new filing status might make you ineligible to claim your kids as dependents. If your spouse receives primary custody, he or she can claim them and receive credits that reduce his or her tax obligations. Keep in mind that if you have more than one child and your income does not phase out the child tax credit, you and your partner can negotiate who claims. For example, if you have four children, you and your ex-spouse could agree to claim two of them. If you have one or an odd number of kids, you can both choose to claim them in alternating years to lessen the blow of your divorce on your taxes.
Alimony
Depending on if alimony is in play and who gets it, you might have a higher tax obligation. Alimony is taxable income to the person receiving it and a deduction for the individual paying it. If you receive alimony and custody of the children, a possible strategy to employ to help offset the tax expense is to use the child tax credit. Keep in mind that the structure of alimony payments in your divorce settlement could also trigger the IRS’ alimony recapture penalty.
If you are getting ready to divorce your partner, consider speaking to a financial expert and attorney to better understand your circumstances. A professional can offer guidance and help you to minimize the impact of your separation on your divorce settlement and post-divorce life.