If you are in the midst of a divorce, chances are that taxes are the last thing on your mind. After all, you probably have a difficult person on the other side who is fighting you on everything from child custody and parenting time to the division of your respective 401k accounts.
Unfortunately, this is a traditional part of the divorce process. The good news is that eventually a settlement may be presented before you actually have a divorce trial. Nevertheless, some people will dig in their heels; mistakenly believing an air of compromise is a sign of weakness. But in the event a compromise is reached, it is important to run the numbers to see if the deal is worth it.
Knowing the tax implications is part of this exercise. So the following should be considered.
Will you be selling any real property?– If you are selling the family home or any investment properties, you may have to report any additional income you will realize. Keep in mind that a windfall may lead to capital gains taxes if the proceeds are not properly allocated.
Do you know how you will allocate the child tax credit?– Custody and parenting time battles are sometimes waged because one parent does not want to be subject to child support. However, the award of the child tax credit can be just as contested. After all, who wants to pay an inordinate amount in child support without being able to benefit from the child tax credit?
Overall, knowing how taxes will affect your post divorce life is critical to understanding and accepting a settlement offer.