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Austin TX Family Law Blog

Monday, December 26, 2016

Federal Taxes and Your Divorce

What tax issues should I consider if I am divorcing my spouse?

Taxes may not be the first thing on your mind if you are planning a divorce, but it is important that you understand the potential federal tax implications you may face in a divorce.  Divorce involves the division of property, child custody arrangements, and potentially alimony or child support.  All of these divorce components can have tax implications.  For personalized assistance with your divorce and help minimizing your tax obligations post-divorce, contact an Austin, Texas divorce attorney as soon as possible.

Community Property

Texas, along with several other states, has adopted the doctrine of community property.  Generally, under community property law, money earned by either spouse during the marriage along with property purchased with those funds is considered community property owned equally by both spouses.  For federal tax purposes, this means that you can be taxed on half of the income earned by your spouse even if you did not know about the income or benefit from it.  Audits conducted after the divorce can be troublesome for the innocent spouse.  Your divorce attorney can protect you from unfair tax obligations that could arise under community property laws.

Alimony

Alimony can have tax consequences for both the payer and recipient.  The payer can deduct alimony on their federal taxes, while the recipient must include alimony payments as income.  There are important considerations to ensure alimony is properly handled in your taxes which your attorney can assist in.

Child Support

Child support, as opposed to alimony, is a nondeductible expense for the payer and untaxed income for the recipient.  For this reason, spouses responsible for payment obligations will likely seek to make the majority of their payments through deductible alimony rather than child support. 

Dependency Deductions

Divorcing spouses can enter into a written agreement stating which spouse will receive the dependency deduction.  This could involve a rotating schedule, or the deduction may go to the higher earning spouse.  While it is easy to overlook taxes during the stress of a divorce, it is imperative that federal tax issues be taken into account to prevent unanticipated expenses after the divorce is final.


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