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Accounting for taxes during a divorce

On Behalf of | Jan 9, 2020 | Divorce

It is important for Virginia couples who are getting a divorce to know how their taxes will be affected by both federal and state law. People might need to wait until the divorce is final before they can file as single since filing status is generally determined by whether they are still married on the last day of the year.

The sale or division of some assets could cause complications. State law or other rules might dictate how some assets can be divided. A qualified domestic relations order is required to split some types of retirement accounts in a divorce. Dividing an IRA in a divorce is not considered a taxable event, but there may be additional steps people can take to prevent a 10% penalty for early withdrawal. The Tax Cuts and Jobs Act has eliminated both the dependent exemption and the ability of alimony payers to deduct those amounts.

People may also want to consider their timing if they are selling property. For example, they could walk away with more profit from a sale of the family home before the divorce is finalized than after because tax laws are more favorable in this regard to married people. Individuals who are going through a divorce might want to work with a financial adviser and other professionals in order to ensure they understand their tax obligations.

An attorney may also be able to assist an individual in determining how property might be divided and what may happen with child custody, child support an alimony. An agreement on these issue may be reached through negotiation instead of going to court. In Virginia, property is supposed to be divided equitably in a divorce. This is not necessarily the same as 50/50, so a number of factors may be taken into account in determining what would constitute a fair division.

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