The Implications of Divorce on Your Illinois Tax Filing
DuPage County Divorce Lawyers
Divorce can be stressful any time of the year, but couple your divorce proceedings with tax season, and you are definitely in for a less-than-ideal situation. Fortunately, going through a divorce right now does not necessarily affect your tax filings for 2015. Your marital status is defined by the last day of the filing year; so if you and your spouse were still legally married on December 31, 2015, you are considered married for 2015, even if your divorce was finalized soon thereafter. If your divorce is finalized during 2016, then your filing status will change in 2016, and the tax consequences of your divorce will be part of your returns.
Illinois Tax Implications and Divorce
Divorce can change a lot for a couple financially. From taking the time to divide assets, to determining what, if any, spousal maintenance and child support payments should be awarded, finances and tax consequences dictate much of the property division settlement aspect of the divorce.
Receiving Divorce Settlements: Understanding Taxable Income
Tax consequences should be considered from the outset when a couple begins attempting to divide their real property, personal property, and intangible property, such as stocks, bonds, accounts, savings/retirement funds, etc. Virtually everything acquired by the couple during the course of the marriage is considered marital property, that is, property that is subject to equitable distribution upon divorce. This is true even if some of the accounts were only in one partner’s name or purchased by only one of the parties. When marital property is divided between the spouses, the division may result in taxable income or additional taxes owed down the line.
While dividing property it is critical to consider how the tax consequences may offset any award of property. Receiving the marital home, cashing out retirement funds, or selling personal property and dividing the proceeds may all cost the recipient a substantial amount of money in taxes. Liquidating these accounts can often result in substantial tax liability for one party, and should be taken into consideration when dividing assets. Consider the marital home, for example. If one person chooses to maintain the home and refinance the mortgage in their name, they will be responsible for the property taxes on the property, which were likely paid for jointly before. This can be a significant expense that many people are not thinking about when drafting their divorce settlements.
Consider also that if you were filing jointly on your tax returns before (as most couples choose to do), you will now be filing separately, which can change your tax bracket, as well as the deductions you can choose to take. Maintenance, for example, is taxable income, whereas child support is non-taxable and is actually non-deductible as well.
What About the Kids?
Your kids can often be your best tax deduction. After a divorce, and in most cases, only the custodial parent will be able to claim children as dependents for tax purposes; however the definition of custodial parents has been recently redefined (and effectively eliminated) by Illinois law. The decision as to who will get the tax deduction for the children may vary depending on how you had previously been claiming dependents on your taxes, whether you were filing jointly or separate, the expenses paid by each party for the children, if either of the parties have children from a previous marriage, etc.
Decisions about the children, of course, are more than financial. There are parenting plans that must be drafted, schedules agreed upon, and a host of factors going into what is in the best interest of the children post-divorce. Getting divorced when children are in the picture can be both complicated and emotional, which is why it is important to have an objective party of experienced family law attorneys helping you through each stage of your divorce.
Glen Ellyn, Illinois Divorce Lawyers
Divorcing requires more than just paperwork; it involves a big-picture analysis of how your divorce will affect your future finances, especially your taxes. You may seek certain assets from your marital property, without realizing the tremendous tax liability associated with it. At Mulyk Laho Law, LLC, our team of skilled DuPage County divorce attorneys know how to navigate our clients’ divorce cases from start to finish. Whether you are contemplating divorce, seeking to modify pre-existing settlement arrangements, or have questions about child custody or property division, we can help. Contact our Glen Ellyn family law firm at 630-852-1100 to learn more about how we can help your family today.