What Are The Tax Benefits of Waiting to Divorce Until the New Year?

 Posted on November 17, 2023 in High Asset Divorce

Tax responsibilities are significantly impacted by one's marital status, and delaying a divorce until the beginning of a new year can provide relief from associated tax challenges. In most cases, even if a couple remains married for just a day in a given year, they still have the option to file taxes jointly as a married couple. Divorce is emotional, and it can be stressful, especially during the holidays. At Powers Kerr & Rashidi, PLLC, a high-asset Texas divorce attorney can help you understand the tax implications so that you can make an informed decision. 

What If I Am In The Middle of The Divorce?

If the divorce is not final yet, you may be able to file a joint tax return even if you and your spouse no longer live together. This could be helpful because it allows you to qualify for a bigger standard deduction when you put both your incomes together on one tax return.

However, you could be liable for all taxes due, even on income that your spouse earned, no matter if it is higher than yours. Therefore, couples filing tax returns are better off staying married until December 31 of a tax year to take advantage of the Married Filing Jointly status. 

How Does Child Custody Affect Taxes?

The Internal Revenue Service (IRS) says that only one parent can claim a child on their tax return each year. In cases of multiple children, parents can typically claim one child each. The custodial parent often gains access to exemptions and credits that reduce their tax burden. In amicable divorces, parents may agree to allocate exemptions based on income levels. Child support payments are neither tax-deductible for the paying spouse nor taxable for the receiving parent. It is essential for divorce negotiations to address potential tax implications, ensuring compliance with IRS rules.

What Is the Impact on Medicare or Other Medical Benefits?

If a spouse is hoping to get Medicare benefits, it may be advisable to stay married a little longer until that spouse becomes eligible for those medical benefits. Under the Affordable Care Act, you would have to get insurance, if you lose it during a divorce.

Are There Tax Implications to Keeping Property?

In general, divided marital property is not subject to immediate taxes right after the divorce but maintaining the property in the years to come may impact your tax liability. Dividing assets during a divorce demands careful consideration, particularly regarding potential long-term tax effects. Assets such as 401(k)s, IRAs, and work pensions also require special attention during divorce proceedings.

Schedule a Consultation with a Travis County, TX High-Asset Lawyer

Recognizing that divorce is a financial transaction, we acknowledge the difficulty of focusing on the long-term tax implications during this emotionally charged time. An experienced Austin, TX high-asset attorney from Powers Kerr & Rashidi, PLLC can provide invaluable assistance. Call 512-610-6199 for a consultation.