When the chips are down and you are in the middle of an intense mediation session attempting to negotiate final orders it is likely that there will be a moment where you think to yourself- “I would agree to anything just to have all this go away.” There isn’t a person in the world that would blame you for having a thought or two like that given how tedious, stressful and difficult a divorce is.
However, there are considerations to make that have little to do with the day to day impact of your divorce that require some extra thought during settlement negotiations. One of those considerations should be in regard to the impact on your taxes in the years following your divorce.
You should lean on your attorney not only during a mediation session but in prior meetings with him or her to express any concerns that you have regarding tax issues. The attorneys with the Law Office of Bryan Fagan, PLLC are not tax professionals- this is something I need to state at the beginning of this blog post. We are experts on the law as it pertains to you, your family and your livelihood but we are not opposed to you seeking additional assistance in the way of taxes.
With that said, we would like to share with you some thoughts on tax issues that we think are relevant for you to give thought to when you are moving in on settling your divorce case. It would be a not so great moment for you to discover a tax issue when your divorce has been signed, sealed and delivered. Having to potentially try and go back and right a wrong can cost you time and money that can be better spent elsewhere. Our attorneys and staff can help you to identify potential issues with taxes but to advise you on these matters you are recommended to speak to a professional tax preparer, accountant or C.P.A.
What happens if you have to divide retirement accounts in your divorce?
This is a common issue that you may be thinking about as well. For starters- what if you needed to take some money out of your retirement account in order to pay for your attorney? This would subject you to being taxed at your income tax rate for that portion as well as suffering through a ten percent penalty. Is your spouse affected by this as well?
It would be worth your asking to find that out. If your spouse had to do this and you knew of it before mediation you can always negotiate from the position that your spouse needs to balance things out in order to see to it that you don’t suffer financially because of their using up community resources to pay for their attorney.
Ultimately you will need to decide how you want to approach this issue in negotiations and which person- you or your spouse- will be able to claim that income on your taxes for whatever year you are about to file for.
If you are awarded a portion of your spouse’s retirement account then you can choose to liquidate that amount of money and suffer no penalty for doing so. However, you would be on the hook for paying taxes on that amount so it would be wise to know what your likely tax burden would be depending upon what you ultimately get to walk away from your divorce with as far as a “payout” is concerned from your spouse’s retirement account.
Of course you can choose to roll that payout into your existing retirement account (most likely) but if you need liquid assets to pay for your own attorney or another debt this may be an option worth considering after you’ve looked into it a little further.
Spousal Maintenance payments
You may be either the payor or recipient of spousal maintenance as a result of your divorce settlement. Spousal maintenance is a specific amount of money that you agree to receive from your spouse for a specific length of time after your divorce concludes, or vice versa. Whether the amount that you pay in spousal support or receive in spousal support is taxable depends on what the IRS’ specific laws on that subject state concerning your particular situation.
For instance, you may be able in some circumstances to deduct any amounts in spousal support that you pay off your taxes, but in other circumstances you may not be able to. Depending on what you and your spouse want to do, and how you want to structure your divorce decree language it may be worthwhile to have a tax professional review the language with you and your attorney before entering into a mediation session.
Deductions that relate to your children
Look to the IRS laws that relate to which parent is able to claim a specific deduction for a child on their taxes to determine if you are able to. This is obviously knowledge that you would want to have prior to entering into negotiations for your divorce. Knowing how any deductions and exemptions will impact you after your divorce is finalized is crucial.
If you can have a decent idea of that impact as you negotiate you will have an advantage in mediation. Having a round about number in mind is something that you can keep in your back pocket when tossing out settlement offers and also considering counter offers from your spouse.
Questions about divorce from a tax perspective? Contact the Law Office of Bryan Fagan, PLLC
While consulting solely with an attorney when it comes to the tax issues of your divorce is probably a mistake, the attorneys with the Law Office of Bryan Fagan, PLLC are here to answer any legal questions you may have on the subject. Our licensed family lawattorneys know the law and can help you to sort through any issues with taxes you may have to better prepare your case and to allow you to speak clearly and impactfully to a tax professional if the need arises. Contact us today for a free of charge consultation.
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Other Articles you may be interested in:
- Taxes and Divorce: How to avoid mistakes when filing during a divorce
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Law Office of Bryan Fagan, PLLC | Spring, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Spring, TX Divorce Lawyers right away to protect your rights.
Our divorce lawyers in Spring TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Spring, Texas, Cypress, Klein, Humble, Kingwood, Tomball, The Woodlands, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.