It seems natural to consider the tax consequences of financial decisions that we make, but many people overlook the fact that divorce involves making many financial decisions. Unfortunately, that often leads them to overlook the tax implications of their divorce agreement.
Whether you and your spouse are in agreement about nearly everything, or you are involved in a contentious battle, one thing is the same: your divorce will probably impact your taxes. It is important to consider the tax consequences of your divorce so that you can create a fair marital property settlement.
The following are some specific tax sensitive areas that should be considered by people who are considering divorce:
- Alimony: Did you know that you can deduct alimony that you pay to a former spouse from your taxes? You must meet certain criteria, but this knowledge can make the lessen the impact of needing to pay alimony.
- Qualified Domestic Relations Order, “QDRO”: A QDRO is a court order that will allow a spouse or former spouse to receive the benefit from the other spouse’s retirement account. Such amounts are included in income for tax purposes, so the receiving spouse must count the payments as income.
- Divorce costs: Most of the legal fees and court costs for divorce are not deductible. However tax advice and legal fees to acquire alimony may be deductible, so it is a good idea to have a clear breakdown of the amounts you paid in your divorce.
- Community Property: Wisconsin is a community property state. This means that there are special rules for determining the couple’s income after a divorce.
As you can see, the tax implications of a divorce are rather complex. Wisconsin couples who are considering a divorce, should consult with an experienced family law attorney who can walk them through these issues.
Source: Central Valley Business Times, “Tax provisions for 2011 regarding separation and divorce,” Alan Shattuck, Aug. 10, 2011
