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Things to Remember About Tax and Dissolution of Marriage

Taxes issues and consequences are a continuous fact of life. It is important, to look at tax effects and tax consequences when you are going through a divorce. The following is an outline of some of the important things to consider as part of your divorce case:

  1. For several years now, due to changes in federal law, spousal support/alimony payments are not considered ‘taxable income’ to the recipient, and as well, such payments are no longer an allowed tax deduction for the paying spouse.
  2. When money is divided as marital property, under Florida’s equitable distribution provision of the dissolution of marriage statute, as long as it is classified appropriately, in either the marital settlement agreement and/or the final judgment, it should not be considered income under the IRS Tax Code and Rules, and not have a tax effect, post-receipt/post-distribution.
  3. It is very important when distributing/dividing retirement accounts in a divorce, such as a 401K, IRA, 457b, 403b, Retirement Savings Account, ESOP accounts, etc, to have the appropriate rollover or transfer paperwork, instrument, or if needed, qualified domestic relations court order completed and in place before the division occurs. If you do not, and if you withdraw the money and distribute it to your spouse without such paperwork or court order in place, then not only will you, as the spouse account holder, potentially face paying an early withdrawal penalty (depending on your age and plan), but you as the spouse account holder will most likely also have to pay taxes on such
  4. If you have minor child(ren) when going through a dissolution of marriage case, make sure that your marital settlement agreement with parenting plan and/or final judgment state, without any ambiguity, which spouse/parent is claiming the child or children for which tax years going forward, post-dissolution, and in regard to and for all child tax credits, earned income credits, and child tax dependency exemption(s). If not, and if you both claim the same child(ren) for the same tax year, your tax return will be flagged, subject you to tax audits, and unnecessary time delays and costs.

I always recommend to my clients while going through the divorce process to speak with and consult with a good tax professional, such as a CPA or Tax Attorney.