Orlando Divorce: Tax Planning
Going through a divorce is stressful enough, and the last thing you need is any additional headaches from the Internal Revenue Service (IRS). This is why divorce-related tax planning is so important. You should always take the tax implications of your divorce into consideration. Proper planning can protect your assets. If you have any questions about tax planning and divorces, or Florida divorce in general, please contact an experienced Orlando divorce attorney for immediate legal assistance.
Taxes and Children
Your divorce could affect your ability to claim tax exemptions, and credits, for your children. An attorney should always review all of your individual tax circumstances, but there are two child-related tax issues that almost all divorcing parent faces:
- Exemptions for dependents: You are entitled to take a tax exemption for each of your dependents. However, following a divorce, only one parent is entitled to take this deduction. The custodial parent, meaning the parent who lives with the child for more than 50 percent of the year, gets the dependency exemption. In cases of joint custody, a dispute may arise over which parent is entitled to take this deduction. This should always be planned for in advance. You do not want a dispute arising in the future over child-related tax issues.
- Medical expense deductions: If you paid for any of your child’s medical expenses, you are generally entitled to take a deduction for those costs. Even after a divorce, both parents may still take a deduction for the medical expenses that came out of their pocket. This is even true if the child lives full time with the other parent.
You must handle your retirement benefits very carefully during the asset division process. For example, if you simply cash out your 401(K) account, in order to pay for part of a divorce settlement, the IRS will definitely tax you on that early withdrawal. You might face a major penalty if you do this. Do not start making withdrawals from qualified retirement accounts without first speaking to an attorney. There are ways for you to avoid these early withdrawal penalties. Your attorney can help you set up a qualified domestic relations order (QDRO), which will allow you to meet the asset distribution requirements of your divorce settlement without facing a tax penalty.
The Family Home
Many divorcing Florida couples are unsure of what to do with the family home. In many ways, this is a lifestyle decision, but there are also tax implications that should be considered. In some cases, the sale of the family home could result in significant capital gains tax liability. Both spouses are entitled to take a $250,000 capital gains exemption for the sale of a personal home. However, if one spouse stays in the home, and takes full ownership, part of the exemption may be lost. Your attorney should always review the tax implications of selling, or remaining, in the family home.
Need Legal Assistance?
If you are going through a divorce in Florida, the experienced legal team at the Law Offices of Steve W. Marsee, P.A. is ready to help. Please contact our Orlando office today at (407) 521-7171 to schedule a fully confidential legal consultation to discuss any of your family law concerns.