Divorce Tax Implications Attorney Serving Essex, Middlesex, Suffolk, and Norfolk Counties
Too many lawyers fail to take into account the tax issues involved in divorce agreements. For many people, a divorce will represent the largest financial transaction in their life; they deserve a divorce lawyer that will carefully and thoroughly factor in the tax implications of every aspect of divorce, from property division to child support.
With years of both business experience and family law backgrounds, the attorneys from The Massachusetts Family Law Group are especially qualified to investigate and consider the tax issues involved in divorce. We crunch numbers and come up with many alternatives to show each client. Our programs oftentimes even produce scenarios that are convincing to both clients and judges.
There are tax implications in every aspect of divorce agreements. For example, paying alimony affords tax deductions and deductible expenses. Child support, on the other hand, does not. If you agree to pay more alimony and less child support, you can reduce your tax burden and actually end up paying less support given the total after-tax support. While the IRS has rules about alimony payments (and if you don't follow them to the letter, you could end up having to pay back the entire deduction — with penalties and interest), we outline the requirements with clients in order to maximize the benefit within the boundaries of the IRS code.
Also, if the recipient of either alimony or child support is in a low tax bracket, the net after-tax effect can be made better for both parties. Our lawyers work hard to take such factors into account, structuring deals that are tax-advantageous for our clients, using a wealth of knowledge to the benefit of everyone involved.
Call your Massachusetts lawyers for tax issues relating to divorce at (800) 763-1030, or to schedule a no-obligation consultation in our Norwood, Plymouth or Springfield offices, please contact.
Tax Issues to Consider
Our attorneys analyze every aspect of property division, child support, and alimony that may affect our client's tax burden. We also address tax refund issues, filing status, and unique issues between Massachusetts and federal tax rules. We ask pertinent questions such as:
- Alimony: Alimony (spousal support) is a payment to or for a spouse or former spouse. It does not include voluntary payments that are not made under a divorce or separation instrument. Spousal support cannot just be labeled as such; it must be court-ordered under a divorce decree or separate maintenance agreement.
- Tax Effect of Alimony: Spousal support is deductible by the payer spouse and considered taxable income to the recipient spouse – unless both agree support is to be tax-free and non-deductible to the respective parties.
- Child Dependency Exemptions: In general, the parent who has custody of the child, or the party to the action who can truly benefit from the tax benefit typically is awarded the exemption. If there are two children, the parties may each report one. In either case, there must be an explicit waiver by completing IRS Form 8332.
- Property Settlements: No gain or loss is recognized when an individual transfers property to a spouse incident to a divorce. Property settlements are a one-time only event, but if transfers are spread-out over time, some subsequent transfers may not qualify as alimony.
- Marital Home Tax Effect: While interest payments and real estate taxes are typically deductible expenses, other tax ramifications such as capital gains taxes, forgiven debt associated with a short sale, and others represent complex issues. Contact a divorce financial advisor – such as Robert Fineman & Associates, P.C. (781-769-0111) for divorce-related accounting issues.
- Tax Refund Checks: If a refund check for a joint return is due after the divorce or separation, it will be mailed to the address on the tax return. The IRS cannot split a refund check between two people. If you suspect your signature has been forged on a joint refund check by your former spouse, the IRS can furnish a copy of the negotiated check for your examination.
- Tax Refund Offsets: The IRS has the authority to apply your refunds to taxes due for other years, debts to other Federal agencies, or for past due child support or alimony. If a joint return is filed and only one party is liable for the debt, the other party is still entitled to his or her share of the refund. For example, you file a joint return with your husband who is delinquent in child support payments to his former spouse. Both of you had wages and withholding reported on the tax return. You may file Form 8379, Injured Spouse Claim and Allocation, to receive your portion of the refund.
- Filing Status: What filing status will you use? Filing status depends partly on your marital status on the last day of the year. Generally, married individuals may file jointly or married filing separately. If you file jointly, you are liable for the entire liability, even if it was the result of the other spouse's income, unless you make a separate liability election. For tax purposes, if you were separated from your spouse for more than six months, you may qualify as head of household. Unmarried individuals may file as single or head of household.
- Attorney Fees: Generally attorney fees for your divorce are not deductible, but there are a few limited exceptions. You may be able to deduct legal fees for tax advice, obtaining alimony, or for preservation of taxable income.
- Gay and Lesbian Divorce: Same-sex spouses in Massachusetts may file as married persons, jointly or separately, for Massachusetts state income tax purposes; however, since Federal law does not recognize same-sex civil marriage, same-sex spouses must remain individual filers for federal purposes.
Tax Problems With the Internal Revenue Service
Once our attorneys begin addressing the financial statement and other divorce finance issues, the conversation turns to tax returns. In some cases, one spouse was not aware that the tax returns were inaccurate when filed – even if the "innocent" spouse signed the return on his or her own.
If your spouse presented the tax return to you for a signature at the very last minute, if you always trusted your spouse relating to the finances, or your spouse even forged your name, you may qualify as an "Innocent Spouse" and receive special considerations relating to your marital tax issues.
The Innocent Spouse Rule applies to both married couples and those who are divorced. Couples who file a joint income tax return are responsible for any taxes owing on the return. The Rule is the only way that someone can avoid being held responsible for the amount owing to the Internal Revenue Service.
The Innocent Spouse Rule can only be used in these four circumstances:
- The amount of tax owing on the return was understated because the other spouse failed to report part of his or her income or claimed deductions he or she was not entitled to.
- The "innocent spouse" did not know this information at the time he or she signed the return.
- In the circumstances, holding the "innocent spouse" responsible for paying the taxes would be unfair.
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The "innocent spouse" files for this exemption with the IRS.
Turn Tax Problems Into Tax Opportunities
When properly handled, the tax consequences of a divorce can increase both your monthly cash flow and the value of your final divorce settlement, leaving both spouses better off.
Even when complex and sophisticated financial considerations need to be addressed, our Founder and Lead Attorney, Lucas M. can offer a uniquely qualified perspective. Prior to becoming an attorney, he was a business and management consultant, known as a "numbers wizard." In other scenarios, he may collaborate with forensic accountants outside the firm to obtain second opinions and other advice which may form the basis for tax recommendations.
Referrals Tell the Story of Our Success
When it comes to representing men and women, business owners and their spouses, high asset individuals, and seniors who are dissolving their marriage and seek divorce-related tax advice, we receive many referrals from former clients and opposing attorneys from past cases - a strong indication of our firm's success.
To learn more, call (800) 763-1030 or contact our attorneys to review your financial matter and schedule an appointment at one of our offices.
