Once the terms of a divorce are agreed upon and both parties walk away from the table, the effects may not have rippled through just yet. Depending on when a high-asset divorce unfolds in New Jersey, the financial impact may be felt during the tax season. Anyone who has received or paid a divorce settlement or child support in the past year should be aware of the tax implications of doing so.
First of all, if the divorce was finalized in the last year, taxes need to be filed separately. Alimony is considered as part of taxes. The person who gets alimony has to pay taxes on it just as if if he or she were receiving a pay check. The person paying the alimony can deduct the payments on his or her income tax return. In a high-asset divorce, this can be a significant amount of money.
Child support isn’t considered as part of taxes. While people engrossed in a high asset divorce may have to pay more support or are entitled to receive a higher amount of child support, the tax implications do not affect the child support payments at all. The payments are not deductible by the payor nor are they considered income to the payee. Also, when it comes to taxes and dependents, only one parent can claim the child or children on a tax return. Both parents need to agree ahead of time who will claim the child or children.
For most people in New Jersey, taxes can be time-consuming and complicated, to say the least. Once a high-asset divorce is thrown into the mix, it can be even more difficult to navigate tax issues without professional assistance or advice. It is best to have a clear understanding about just how tax season will impact a divorce and the obligations that may have resulted from the proceedings.
Source: 13wmaz.com, “Six tax tips for the newly divorced“, Jennifer Leslie, March 21, 2015