When a Wisconsin couple decide to divorce, most of the legal issues to be resolved will be governed by Wisconsin state law. But there also are federal income tax implications that should not be overlooked. Some advanced planning will be required to ensure that there are no surprises for either ex-spouse at tax time.
The first area of concern relates to the deductibility of alimony payments versus child support payments. If a divorce decree designates a payment as alimony, it is deductible by the person making the payment and taxable to the recipient. With child support payments, however, this is not true. Another issue relates to exemptions for dependents. The parent with child custody for the majority of the year generally is entitled to the exemption but may waive it in favor of the noncustodial parent.
Another consideration is how the timing of a divorce will affect tax filing status. If a divorce is finalized before year-end, each ex-spouse must file their federal income tax returns as unmarried individuals. If a couple wants to avoid the “marriage penalty,” it may be to their benefit to finalize their divorce before the end of the year.
There are other tax implications with respect to property received and then sold in a divorce settlement, the sale of the marital home, benefits in retirement plans or IRAs, and life insurance policies. An experienced divorce attorney can advise as to the tax implications that arise at the end of a marriage. The attorney also can help make sure a divorce settlement accurately reflects the parties’ intentions with respect to tax and other financial matters.
Source: The Willits News, “TAXES & FINANCES: Watch for tax angles in divorce agreements,” Jim Angell, Nov. 7, 2012
