If you divorce in the state of Indiana, dealing with your ex will not be your only concern. You also have to deal with the IRS. Keep reading, and find out how your divorce affects your taxes and how a Merrillville divorce law firm may be able to help.
Assets are transferred in almost every divorce, and that transfer impacts your federal taxes.
This is a brief look at how divorce affects your taxes, but if you have specific questions about your own divorce and taxes, you’ll need reliable, personalized legal advice.
WHO CAN HELP YOU AVOID TAX TROUBLE DURING AND AFTER A DIVORCE?
That’s why, in an Indiana divorce, you must have advice and representation from an experienced Lake County divorce attorney – someone who has answers to questions about taxes and divorce.
While the impact of a divorce on your income taxes may be slight or substantial, the insights and advice that a knowledgeable divorce attorney can provide will help you steer clear of tax trouble.
If your divorce was finalized on or after January 1st, you may still submit a joint return if, all of last year, you were legally married – and if your ex agrees to file jointly.
WHAT’S THE UP SIDE OF FILING A JOINT RETURN WITH YOUR EX?
A joint return almost always lets you pay less to the Internal Revenue Service.
But before you file your federal income tax return, speak with your financial advisor and your divorce attorney regarding the pros and cons of submitting a joint return.
When ex-spouses file taxes jointly for the previous tax year, each becomes liable for the taxes as well as any interest, penalties, and deficiencies.
You may need a tax indemnification agreement if you submit a joint return with your ex.
WHAT DOES A TAX INDEMNIFICATION AGREEMENT DO?
A tax indemnification agreement makes one ex-spouse liable for deficiencies, penalties, and interest due on joint returns filed previously, and the agreement shields the other ex-spouse.
If you file jointly, and if you do not have a tax indemnification agreement, you could be deemed liable for any underpayment.
That’s why it is imperative to have your divorce attorney make certain that your final agreement decree explains exactly how you and your ex-spouse will handle any tax refund or tax liability.
WHAT DETERMINES YOUR FILING STATUS AFTER A DIVORCE?
Your filing status is determined, at least partially, by whether you were still married or already legally divorced on the final day of the tax year.
If your final divorce decree was issued at any time during the previous tax year – even December 31st – you’ll file your tax return as if you were not married at all during that year.
When that is the case, your filing status should be “head of household” or “single.” You must satisfy these requirements to file as “head of household”:
1. On the last day of the year, you were not married.
2. You paid more than half of the household’s expenses during the year.
3. A “qualifying person” lived in the home with you for more than half of the year.
4. You are eligible to take an exemption for your child.
A custodial parent may transfer the exemption for the child to the non-custodial parent.
In this case, the custodial parent will sign a written statement that he or she is not claiming the child as a dependent, and the non-custodial parent includes that statement with his or her return.
If a final decree in your divorce was not issued at any time in the previous tax year, and you are filing as head of household, your ex must file under “married filing separately” status.
IF YOUR DIVORCE WAS FINAL IN 2017, WHAT TAX ISSUES DO YOU FACE NOW?
If your divorce became final during the last tax year, a number of questions emerge, such as:
How do you handle mortgage interest and property taxes you paid on a jointly-owned home? What do you do with interest derived from a joint savings account?
All income and expenses in a marriage are considered equally earned or paid if you reside in a “community property” state, but Indiana is an “equitable distribution” state.
Even so, each ex-spouse is normally taxed for one-half of any income generated by any assets or properties up to the time that asset or property is transferred solely to one ex-spouse or the other.
WHAT IS THE IRS RULE REGARDING SPOUSAL MAINTENANCE?
There is no “alimony” in an Indiana divorce, but in very narrow circumstances, you may be ordered to pay or permitted to receive “spousal maintenance” by an Indiana court.
In this state, if you expect to make spousal maintenance payments, or if you believe you will receive those payments, you must know how spousal maintenance will affect your taxes.
Current law lets an ex-spouse deduct spousal maintenance payments, and the ex who receives spousal maintenance must consider it income and pay taxes on it.
While that remains the rule in 2018 (for tax year 2017), beginning in 2019 (for tax year 2018), the new spousal maintenance rule will be the mirror opposite of the current rule.
Starting in 2019, when you submit a return, the ex who makes spousal support payments won’t be allowed to deduct them, and the ex-spouse receiving spousal support will not be taxed for it.
WHAT IS THE IRS RULE REGARDING CHILD SUPPORT?
Child support does not constitute income, so custodial parents are not taxed for the child support they receive.
If you want to avoid tax troubles arising from a divorce, knowing what is at stake is imperative. What is provided here is merely an introductory look at the effect a divorce will have on your taxes.
As you would imagine, more affluent couples with more assets and properties will usually find it more difficult to resolve divorce-related financial disputes.
And even when nothing is disputed, resolving the tax issues arising from a divorce is also usually more difficult for couples with considerable properties and assets.
AT WHAT POINT SHOULD YOU SPEAK WITH A DIVORCE LAWYER?
But taxes and tax questions should not prevent you from divorcing or from obtaining the fair and just divorce agreement that you deserve.
Here in Indiana, let an experienced Lake County divorce attorney answer your financial and legal questions and guide you through the divorce process – from the very beginning.
If you divorce, you must have reliable, reputable legal counsel. You’ll want an advocate who aggressively represents your rights and interests.
The rest of your life will depend on how your divorce is handled and settled, so you must have trustworthy, experienced legal help from the beginning of an Indiana divorce. That is your right.