Loretta Hutchinson, a Certified Divorce Financial AnalystTM with offices in Florida, answers:
Your income taxes can be affected in many different ways by your divorce. Some examples (using Florida tax rules) might be:
- Alimony payments are deductible by the paying spouse, but not child support. If you are the receiving spouse, spousal support payments are taxable provided they qualify as “alimony” under tax rules. Child support, however, isn’t deductible by the paying spouse, and neither is it taxable to the recipient. You are also entitled to claim a dependency exemption if you have legal custody of the child(ren). However, you also have the right to waive this exemp- tion and allow the non-custodial spouse to claim it.
- When property is divided the tax effects are not immediate. Property transferred between the spouses does not result in a taxable gain or loss to the transferring spouse. However, the receiving spouse will take the same basis (cost) in the property that the transferring spouse had. It is possible that at a later date the receiving spouse may have to pay taxes, if/when the property is sold.
- How you handle your retirement plans such as Individual Retirement Accounts or 401(k) can have significant tax implications.
- If there are business interests transferred due to the divorce, it is highly important to ensure certain tax attributes are not forfeited.
- It can get even more complicated if you and your spouse live in different states given that divorce laws differ from state to state.