10 Things You Need To Know About Divorce and Taxes

When you divorce you will be subject to a new set of rules when filing taxes. Understanding the rules governing tax in relation to divorce will help you make the best decision during your divorce process.

This excellent article by Rebecca Siggers outlines how divorce changes your tax obligations. The divorce process gives you enough stress, and you do not want the IRS to come for uncleared taxes at your doorstep.

1. The Date You Legally Divorce.  Your marital status on December 31st determines your tax obligations.
2. Who Takes the Responsibility of Children? According to IRS regulations, only one parent can claim dependents in any given tax year.
3. You Might Qualify for the Head of Household Status.
4. Child Support is not a Deductible Expense. Child support payments are also not a source of income. As such, if you receive these payments, do not include them in your taxable income. In short, child support payments are tax neutral.
5. Alimony and Tax. For divorces after December 31st, 2018, spousal maintenance is not tax-deductible for the individual paying. Similarly, it is not taxable income for the recipient.
6. Divorce Costs are not Tax-deductible.
7. Property Taxes. Fortunately, you do not incur taxes on property transfer. Under the Internal Revenue Codes, property division as a result of divorce is not taxable. Unfortunately, if you decide to sell the home, you might have to pay capital gains tax.
8. Retirement Benefits and Plans. How you choose to go about the sharing of retirement assets might affect your taxable income.
9. A Divorce Could Affect Your OIC Agreement with IRS. IRS offer in compromise is an agreement between an individual and the tax regulator to reduce the tax burden.  When reviewing your OIC, the IRS also looks at your current income stream, as well as your tax profile. Your income is a significant factor in your tax profile. Therefore, if you receive a massive amount in a divorce settlement, there will be a considerable change in your tax profile. And, as a result, the IRS might review your OIC.
10. Name Change and Filing Tax Returns. If you change your name, make sure you alert the Social Security Administration as soon as possible. When filing returns online, your records in the IRS have to match the SSA records. Otherwise, the system will reject the returns.

Final Thoughts

A divorce is a complicated process. However, you can make the aftermath of divorce less stressful by learning about all the possible changes, which include changes in your tax obligations and liabilities. After learning the essential things you should know about divorce and taxes, you can now decide with your spouse on what move to take to benefit both of you.

Implementing Your Parenting Plan

Too often, co-parents put together a Parenting Plan, without a lot of consideration for how to implement the plan. Sometimes one or both co-parents are optimistic and think “we’ll just handle things the way we always have…the parenting plan is just there for back-up if we have problems, and we won’t have problems.”

Until…

... in this excellent blog posting, Shannon Balk writes that what causes discord will often also cause “problems."  For example, tension can be created when one co-parent starts dating and leverages grandparents for babysitting or hires a babysitter during their own parenting time. (The “right of first refusal” clause is the most easily forgotten!)

With change, comes resistance…particularly for those who have a need for control, or for those who feel they’ve been “one-upped”.

Get Ahead of the Problems

It’s all about implementation. Hopefully you and your co-parent took quality time to put together a parenting plan as part of the finalization of your divorce, and are willing to put more time in for activating your plan. If you adopted a standardized parenting plan, these too require conversation and review. Here are some steps to help you and your co-parent implement your plan:

• Plan a meeting where you and your co-parent can review your parenting plan.
• Before the meeting, review the plan on your own and note any confusing or vague parts of the plan.
• At this meeting, put your emotions aside! This is a plan that concerns your children, and their well-being.
• Use the meeting time to come to agreement on the “what if” scenarios that might not be covered in your plan (see above tension points for examples).
• Establish a regular plan to keep each other updated on what’s working and what’s not working: a quick text before parenting time transitions, a weekly email or phone call, etc.

These steps and tips can allow for a less painful transition into co-parenting. Don’t underestimate the significance of your parenting plan!

5 Mediation Strategies for a Successful Divorce Agreement

There are many benefits to choosing mediation for your divorce.  And, as Leah Hadley writes in this exellent blog posting, it’s also important to understand and prepare for the challenges.

The decisions made in mediation can significantly impact your life for years to come. With that in mind, it can be easy to become overwhelmed during the session if you are not adequately prepared. Likewise, you may make agreements that are not in your best interest if you are tired and worn out.

These simple mediation strategies will help you make the most of your mediation session and get what you want from your divorce settlement. I strongly believe in the benefits of choosing mediation for your divorce but it's also important to understand and prepare for the challenges. The decisions made in mediation can significantly impact your life for years to come. With that in mind, it can be easy to become overwhelmed during the session if you are not adequately prepared. Likewise, you can make agreements that may not be in your best interest if you are simply tired and worn out from the mediation.

These simple mediation strategies can help you get what you want from your divorce settlement.

• Take Time to Reflect Ahead of Time
• Consider Strengths and Weaknesses
• Monitor and Control Your Emotions
• Don't Overreact to an Offer
• Take Your Time and Make a Thoughtful Decision

There are many benefits to mediation and it's more cost-effective, efficient and less stressful than going to court. Additionally, you also have a lot more control over the outcome. That said, it's important to take the time you need in order to prepare. By doing so, you’ll be much more likely to reach a favorable settlement. Your future is at stake, so take your time and plan ahead for success.

Divorce Is Destroying the Finances of Americans Over 50

I've blogged before about "Grey Divorce" - splitting up after age 50 - and the experience's traumatic emotional and financial impacts.  Grey divorce may be particularly hazardous to your emotional and financial health, far worse than doing so at younger ages.

In this excellent blog posting from Bloomberg, Ben Steverman writes about a wave of new research quantifying the damage.