What Women Need to Know About Finances After Divorce
Kiplinger’s recent article entitled “What Women Should Know about Post-Divorce Tax Planning” says that managing the post-divorce tax implications involve more than just a change in filing status. When you get divorced, understanding the more subtle aspects of tax planning is an important step for women in managing your finances. Here are a few considerations to keep in mind to simplify the process.
Filing status. This is determined by your marital status as of December 31. It will change to one of two options: Single or Head of Household. If you and your ex-spouse have children, and your home will serve as their primary residence for more than half the year, you can file as Head of Household. However, if your divorce is not final during the tax year, check the filing rules in your state.
Division of property. The tax deduction for home mortgage interest and real estate taxes are a big issue during divorce. Understand who has the right to claim the deduction and accurately account for those payments. The higher standard deduction under the Tax Cuts and Jobs Act may reduce the tax benefits, if these expenses are being divided. Ownership of the home and the amounts paid for the mortgage determine who takes the tax deduction. If you share a mortgage, the deduction on your tax return should show your part of the expenses paid, with the same applied for your ex-spouse because your ex-spouse can also take deductions in proportion with the amount they are paying.
Claiming children as dependents. The separation agreement may say which parent gets to claim which child. If the divorce settlement does not say anything, the custodial parent – the parent who has primary guardianship – gets to claim the exemption. Note that while exemptions can be negotiated, child-care credits cannot. Only the custodial parent can take child-care credits.
Income and estimated tax payments. After a divorce, your income stream many be different from when you were married, especially if you get alimony and child support. There were changes to taxation of child support and alimony for divorces after 2018. Child support is non-taxable, as is alimony, at the federal level. Payments made for child support and alimony are also no longer deductible from taxable income by the payor. State tax treatment of alimony varies, so ask an experienced attorney about possibly revising your estimated state tax payments.
Dividing investments and asset allocation. Once your investments are divided, and you have your assets, you need a comprehensive understanding of your portfolio and the resulting tax implications if you make changes to your investment strategy. When reviewing investments, consider what you have saved for retirement.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “What Women Need to Know About Finances After Divorce” read these additional articles: How Do I Set Up an Estate Plan to Help Grandchild with Special Needs? and Can You Set Up a Trust After Death? and Do I Need an Attorney for Probate? and What Happens to Parents’ Debts When They Die?
Reference: Kiplinger (Feb. 10, 2022) “What Women Should Know about Post-Divorce Tax Planning”