Divorce and Tax Issues
Death and Taxes, the only things you can be guaranteed in this life! There are some complex areas of the tax law that most divorce lawyers just don’t feel comfortable giving advice on. That said, the Attorneys at Kohlmeyer Hagen, Law Office are very familiar with tax questions that come up frequently in divorces or in family law cases
Is the Alimony that I pay tax deductible?
The answer is often yes. This is a critical point to understand when you are looking at the amount of alimony you may pay as the $1,000 you are paying for alimony may be closer to $700 after taxes. The IRS has specific regulations on what is considered tax deductible alimony that you will want to read up on. The law has made a significant change as of January 1, 2019. All the information that you may read on line is now hopelessly out of date. The key takeaway is that Alimony/spousal support/spousal maintenance is not taxable nor is it deductible any longer.
Is the alimony that I receive taxable?
Often times, yes. While the IRS has very specific guidelines on what is and is not considered alimony, as a general rule alimony is taxable. This is critical when working on your budget as there is no withholding paid from an alimony check like a paycheck. You might be hit with an unpleasant tax surprise if you don’t properly plan for it. See above for the big law change as of January 1, 2019
Who gets to claim the kids for taxes?
This is normally addressed during the divorce or custody case. This means the Judge will sign an order that gives the children to a specific parent for tax purposes. More often than not, the tax exemptions are divided equally, however it is possible to negotiate issue during the case.
My Accountant tells me it doesn’t matter what the custody order says, is this true?
Sort of. While a Minnesota Divorce Court cannot order the federal government (IRS) to do anything, the divorce court order does control the parties, this means that if you ignore the Divorce Court Order and take your accountant’s advice, while you may be in compliance with the IRS you may be in contempt in court.
Do I have to file and claim “married” even if we were separated?
If you are still married at midnight on December 31, the answer is yes. The IRS goes by the calendar so it all depends on if your marital status at the end of the calendar year, not your “relationship status.
Do I have to pay taxes on my property that is divided during the divorce?
No. If you transfer assets during the divorce you don’t have to pay taxes on the couch, the 401k, or the car. However; you will still be under capital gains taxes on the house or other property. Under the current law, if you’re single you get to exempt $250,000.
What if I claim the kids as dependents and my ex does too?
This is pretty easy for the IRS to detect and they don’t like it! What typically happens is a “min-audit” occurs. You and your ex will be notified that the social security numbers are in conflict and the IRS will try to resolve the mistake. Remember, you or your ex will still be on the hook for any penalties interest or other payments that might happen , which is why it’s always a good idea to deal with this issue prior to filing your taxes.
Is Child Support taxable?
No. Child support is always considered “tax-neutral” which means that the amount you pay or you receive for child support will not affect your taxes at all.
Are the legal fees spent trying to receive or to fight alimony tax deductible?
While the general rule is that legal fees paid during a divorce are not tax deductible, which means there is no need to send your divorce lawyer a 1099, it is possible that any fees paid trying to get or fight spousal maintenance might be tax deductible. It can be a bit complicated you’ll need to talk to your CPA to get the details.
As you can see divorce or custody issues can cause some complex tax ramifications, which is why you need to be sure the divorce lawyer you choose has a solid grasp on both Minnesota and Federal Tax Law.