When couples are going through a divorce, they are typically focused on topics like division of property, child custody and support, alimony, and more. However, other important aspects should be considered, including the tax consequences for each spouse. Divorce will have an impact on the finances of both parties, and failure to address tax consequences can take a seemingly favorable outcome and transform it into a financial nightmare.
It is important to speak with an Illinois divorce attorney, even in a situation in which you and your spouse are able to reach an agreement about the division of marital property without litigation. At Momkus LLC, we can help you understand your potential tax liabilities based on different circumstances. Our team of attorneys has years of experience handling Illinois family law matters, including complex divorces involving couples who have a high net worth or family-owned businesses. We help our clients understand the whole picture in a divorce.
Tax Consequences to Consider While Your Divorce is Still Pending
The divorce process will typically take several months to complete, and there may be tax challenges you encounter before your divorce is final. You need to choose one of three options for your income tax filing status—married filing jointly; married filing separately; or single head of household, for which you must meet certain requirements. Couples can only file jointly for a tax year in which they were still married as of December 31, but if their divorce was finalized on December 31 or earlier, they must file separately for that year. If you can work together with your ex-spouse to determine a mutually beneficial approach, you can potentially minimize your tax liability.
In some cases, you may want to file jointly, while other situations may benefit from separate filings. However, if you cannot get your spouse to agree, and he or she is unwilling to sign the joint returns unless they get something of value in the settlement, you need an Illinois divorce attorney who can help. If you do file separately, you have to coordinate who claims certain deductions relating to real estate property ownership. Typically, the spouse who makes the payments on a mortgage would be the one to receive any related deduction, but usually only in cases where the property is jointly owned. Other situations might dictate that the deduction goes to the property owner, regardless of who makes the payments.
When assets are transferred from one spouse to the other during divorce as part of the marital property settlement, this is usually a non-taxable event. However, when dividing family businesses and other hard-to-value assets, the process becomes far more complicated, and the assistance of accountants or other financial experts may be necessary to ensure that all tax issues are addressed correctly.
New Alimony Tax Laws
New tax laws went into effect this year that changed how alimony is handled from a tax perspective. Alimony payments are no longer tax-deductible for the payor, and they are not considered taxable income for the payee. For divorces that were finalized prior to January 1, 2019, spousal maintenance payments will continue to be tax-deductible for the payor, and the recipient will be required to pay income tax on these payments.
Contact a DuPage County Family Law Attorney
If you are preparing for divorce or are currently going through the divorce process, you need to consider all the potential tax ramifications to ensure you are in a good financial position once everything is final. A skilled Lisle divorce lawyer can ensure that you understand your rights and advocate for your financial interests. Contact Momkus LLC today at 630-434-0400 to schedule an initial consultation.