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Anderson and Associates, P.C.

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630-653-9400

Wheaton IL Divorce and Taxes Lawyer

Attorneys Helping Clients Understand the Tax Implications of Divorce in DuPage County

Warrenville Tax Implications of Divorce Lawyer

During divorce, a couple will need to work out a wide variety of important details, including the division of marital property, the allocation of parental responsibility, and whether either spouse will pay child support or spousal maintenance. These decisions will have major financial ramifications in both parties' lives for years to come, so divorcing couples need to be sure they understand all the relevant details of these decisions, including the effects they will have on the taxes they pay and the tax exemptions and credits they can receive.

Filing Status During and After Divorce

One of the key decisions that divorcing spouses will need to make is whether to file taxes jointly or separately during their divorce. If the spouses were still legally married at 11:59 PM on December 31 of the previous year, they have the option to file a joint tax return for that year. However, if their divorce decree was finalized before 11:59 on December 31, they will need to file separate tax returns. If either spouse was the custodial parent of any children for at least six months during that year, they may be able to file as head of household.

During the divorce process, spouses should consult with their attorney and an accountant to understand their options and whether filing joint or separate tax returns will provide the most beneficial results. If spouses do file jointly, their divorce settlement should specify how to divide the tax return or allocate any taxes that are owed.

Child Tax Exemptions and Credits

If divorcing spouses have any children, only one spouse will be able to claim a child as a dependent after the divorce. Typically, the custodial parent will claim children as dependents, but parents may agree to split the exemptions for multiple children or alternate the exemptions each year. When a non-custodial parent claims a child as an exemption, the custodial parent will need to submit a Release of Claim to Exemption for Child by Custodial Parent form (IRS form 8332) with their tax return.

When a parent claims a child as a dependent on their tax return, they are also eligible for a Child Tax Credit of up to $1,000 for each child younger than 17 years old. They can also claim a Child Dependent Care Credit for a certain amount of employment-related childcare expenses for children younger than 13 years old.

Other Tax Considerations

  • Property transferred from one spouse to the other spouse in a divorce settlement is not considered a taxable gain or loss, as long as this agreement is part of the divorce decree and the transfer takes place within one year after the divorce decree has been entered into court records.
  • Gain from the sale of the couple's marital home is taxable, but if it was the couple's primary residence for at least two of the previous five years, the first $250,000 of this gain can be excluded when divorcing spouses file taxes separately, or the first $500,000 if they file jointly.
  • If the funds from retirement accounts or pensions are distributed between divorcing spouses, these amounts will be taxable, unless a Qualified Domestic Relations Order (QDRO) is filed, or the funds are rolled over into another retirement account.
  • Parents paying child support cannot claim these payments as a tax deduction, and parents receiving these payments do not need to list them as taxable income. However, spousal maintenance (alimony) is considered taxable income for the recipient and tax deductible for the spouse making payments.
  • If spouses sell any property following the divorce, any gain from this sale is taxable. However, each spouse can exclude the first $125,000 of this gain from capital gains taxes.

Contact a Naperville Divorce Tax Attorney

The skilled divorce attorneys at Anderson and Associates, P.C. have over 30 years of experience assisting clients as they determine how to resolve the issues that arise both during and after divorce. We can work with you to review your finances and understand how the decisions made in your divorce settlement will affect your taxes immediately following your divorce and in the years to come. Contact our Wheaton law offices at 630-653-9400 to set up a free consultation. We serve clients throughout DuPage County.

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