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Taxes are an important, although often overlooked, element in a marital property division. Quite frankly, many people only think about these issues when they are actively engaged in preparing their returns. But the amount of money going out via taxes and fees is every bit as important as the amount of money coming in by way of income and support payments. For the divorce to not be an unfair financial burden on either party, both short- and long-term tax consequences must be duly considered.
At Glasgow & Olsson we understand that a workable order should not have an expiration date. If the parties understand the complete financial picture at the time of divorce, they will not be back in court a few years later asking the judge to modify financial provisions. That is an important consideration because many courts may be unwilling to change the decree due to circumstances that could have been reasonably anticipated.
Until a judge grants a divorce, the spouses are legally married. In addition, as far as the IRS is concerned, a couple that is married for any part of a year is generally considered to be married for the entire year. It is not uncommon for a spouse to refuse to sign a joint return or refuse to cooperate in its preparation. If this happens, contact an attorney right away because there may be options other than filing a “married filing separately” return.
Some attorneys’ fees are deductible on Schedule A. Spousal maintenance is generally both taxable income and a deductible expense, while child support is neither taxable nor deductible. The custodial parent normally is entitled to the dependent tax exemption, child tax credit, and related items, although this entitlement is negotiable.
Real estate and other fixed assets may present a different set of questions. Tax liability on a primary residence may increase over time, as the mortgage interest deduction gradually gets smaller and eventually disappears entirely. Other assets, such as revenue-producing real property, may move in the opposite direction, as the asset depreciates. Both these examples are subject to both changing tax laws and individual conditions.
In a similar vein, while maintenance payments are generally deductible, payments related to a property division are not. The IRS has a number of rules in place to prevent parties from reclassifying property division as spousal maintenance, and a tax professional is in the best position to give competent advice. In fact, our attorneys often partner with qualified professionals during a divorce or modification procedure, so you have the best possible information.
Tax issues have both a short- and long-term impact on your divorce. Contact our attorneys today at 847.577.8700 for your initial consultation. The law firm of Glasgow & Olsson serves families throughout Cook County, Kane County, DuPage County, and the rest of the surrounding Chicago communities.