Divorce and Taxes: What To Expect

divorce and taxesA divorce is an especially difficult time for all parties involved. When you combine divorce and taxes, things only get more complicated. Not only is a large part of an individual’s life changing, but they face a new economic upheaval. It is important to have a good grip on proper tax decisions when going through a split. Often, this part of a separation is neglected until it too late and financial damage has been done. Don’t let the pressure of the situation stop you from having the freedom to move on quickly. Make the moves that have to be made. Below is a list of some helpful tax tips to help guide people through divorce with financial grace.

Tax Tips for Divorcing Couples

Filing Status

First, it is important to realize that if two people divorce the same year they were legally married they can still file taxes together. This gives couples a year window to receive the continued tax breaks given through marriage. If the separation occurred in a new year, it is possible to file as a single head of household, if children are claimed as dependents. This may allow an even bigger tax break than filing together. The decision on who is eligible to claim the children can be determined by who holds custody the longest. Typically, if one parent cares for a child for more than half a year, that parent will claim the child. The decision can also be made by the couple outside of court system.

Alimony and Taxes

Second, it is important to not over value alimony money. The individual receiving the funds must now pay taxes on that income. However, the person paying the alimony does receive a tax break to help facilitate the continued payments. In specific divorce agreements, these rules can be different. However, for the vast majority alimony is not quite the amount many plan for it to be as a result of applied taxes.

Proceeds from the Sale of Your Home

Third, is important to properly time the selling of a home. Single filers can shelter up to $250,000 from a sale. However, a couple can hold up to $500,000. If a person is at either of these thresholds with their house, timing will be key to keep the most money for the future. It should be noted that these tax breaks only occur on houses that have been owned for 2-5 years.

Mortgage Interest Deductions

Fourth, if you are keeping your house, the spouse who owns the home will continue to receive mortgage interest deductions. This occurs regardless of who lives in the house. If both people in a couple jointly own the house, then the deduction is split regardless of who lives there as well.

Villani & DeLuca hopes the above tips will help you navigate through this difficult time. For additional tips, click here or speak with a qualified NJ divorce attorney. Understanding the tax implications of divorce is crucial to ensure security for yourself, your family, and your goals.

For additional tips regarding finances and divorce, contact the family law attorneys at Villani & DeLuca at 888-389-9533 for a free consultation. We can help you get your finances off to the right start, as well as provide recommendations for financial planners moving forward.