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Divorcing Couples With Large Estates Face Unique Tax Issues

| Apr 28, 2021 | High Asset Divorce |

When couples choose to divorce, they likely feel many conflicting emotions. Grief, shame and anger can conspire together to cloud a person’s judgement and impair their ability to process the administrative side of divorce. Many spouses seek legal counsel to help guide them through this challenging process and make sure they don’t overlook anything important.

One thing divorcing couples may forget to consider is how filing taxes will change. Overlooking this may cost a person much more than they thought they were losing.

New filing choices for the newly divorced

Taxes impact divorce during asset division when spouses negotiate who takes individual possession of marital assets. High-value assets — houses, cars, stock portfolios, etc. — incur high taxes, but divorcing couples have opportunities to avoid the worst if they can work together.

Couples can find opportunities to secure tax breaks with how they file:

  • Time of divorce: If you finalized your divorce before December 31 of the current filing year, you must file as “single” or “head of household.” Couples with legal separation orders or those who have lived apart for over half a year may choose these statuses, but they do not have to. Couples still married by the end of the year can file as “married filing jointly” or “married filing separately.” Filing as head of household or jointly will help even divorcing couples save on taxes.
  • Maintenance and child support: Couples with children can secure additional tax breaks with careful allocation of child support and maintenance (sometimes called alimony) payments. Payers cannot deduct child support payments, but they may deduct maintenance payments. Support receivers must pay income taxes on maintenance payments, but not child support. The IRS may allow payers to remit child support as alimony to save further on taxes.
  • High-value assets: During the divorce, spouses can transfer marital property between themselves without paying taxes. Spouses may also buy out the other’s share in something like the family home but may end up owing capital gains taxes. Your lawyer can present customized options suited to your estate and customized to your goals.

Every divorce is unique and requires personalized care

The most effective way for spouses to avoid paying excessive taxes after their divorce is through cooperation and compromise. A lawyer with experience in Missouri family law can help draft settlements that prioritize your goals and help you move on.