Every year, many people are fully satisfied with their divorce settlements — until later, when the tax consequences become apparent. Because the value of a seemingly fair divorce settlement can easily become eroded by unexpected taxes, you need to become educated on tax considerations long before your divorce decree is signed and finalized in a Florida court.
Floridians do not pay state income taxes, but divorcing couples can face possible tax consequences involving a family business — just one example of how divorce can affect taxes at a state level. However, federal taxes liabilities can change substantially as the result of divorce. At the very least, child support and custody arrangements can change your tax filing status, potentially eliminating many exemptions.
Of course, tax exemptions are only one consideration. The IRS provides great detail on the tax consequences of divorce in Publication 504, including the following points:
- Alimony payments are deductible by the payer, but the recipient must claim these payments as income.
- Expenses for a jointly-owned home may be considered as alimony as well — so, if your spouse pays certain expenses, such as the principal and interest in a mortgage, you must claim half of the total payments as alimony.
- Property settlements are typically not subject to taxes if they occurred as a result of your divorce, but you may have to report these values as gift taxes or report your share of the gain or loss if you and your spouse sell the property and split the proceeds.
- Legal fees for divorce are not generally deductible. However, you may be able to deduct fees for divorce-related tax advice or even fees paid to appraisers, accountants and other professionals to determine your correct taxes.
The more information you have prior to negotiating your divorce settlement, the better you can protect yourself from the adverse effects of taxes. The law firm of Feldman & Schneiderman, P.L. provides decades of combined experience and specialized resources to help ensure you do not face major surprises after your divorce.