Couples May Overlook Tax Implications of Divorce

As couples go through the process of divorce, there are a lot of important questions that deserve attention. Between deciding what to do with the family home and how a child custody arrangement will shake out, people in the midst of divorce have a lot to think about. However, failure to address seemingly minor details can have major consequences down the road.

Taxes might not be the first thing couples think about during divorce, but there are some issues worth consideration. Divorcing couples can transfer assets without worrying about a tax burden, but alimony payments included in the settlement could trigger taxation.

On a very basic level, people who receive alimony payments generally should claim it as taxable income. At the same time, those who pay alimony can consider it a deduction. The important thing, however, is to make sure that the amounts match. Any discrepancies in this regard could set off red flags with the Internal Revenue Service, which is a headache no one wants to deal with.

Furthermore, a report in the Pittsburgh Post-Gazette points out that parents might have to consider who is claiming the child tax credits. Although child support payments aren't considered taxable income or deductions, inconsistency with claiming children as dependants can create issues.

Clear communication can help prevent tax discrepancies. If each former spouse knows how the other is going to approach tax filings, they can avoid potential fallout. Of course, this is something a person can discuss with an attorney during the divorce process in order to make sure everything is clear.

Of course, 2014 has just arrived, so the April income tax filing deadline might not be on the radar of many Pennsylvanians. However, it may not be too early to make tax consideration and begin a discussion. After all, scrambling to find answers at the last minute can create confusion and lead to mistakes.

Source: Pittsburgh Post-Gazette, "Communication key for estranged couples during tax time," Tim Grant, Jan. 9, 2013

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