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Kane County Tax Considerations in Divorce Lawyers

Kane County Divorce Taxes Lawyers

Divorce Attorneys Serving St. Charles and Geneva Explain Income Tax Consequences of Property Division and Spousal Maintenance

When preparing a divorce settlement, it is crucial to consider the impact of state and federal income taxes. The decisions you make, such as how you divide your marital assets, can save or cost you thousands of dollars.

At Weiler & Lengle P.C., we have handled hundreds of divorce cases for clients with complex financial situations. We stay up-to-date on changes in tax law relevant to divorce settlements and call on tax accounting experts as needed to ensure that you are not hit with an unexpected tax bill. Whether you are concerned about protecting your business, selling your home, or paying maintenance (alimony), you can rely on us to give you sound legal and tax advice.

7 Ways Divorce Can Affect Taxes

The information here should be viewed as general but not specific guidance because both federal and state tax laws change annually. This information assumes both spouses are American citizens or lawful permanent residents of the US.

  1. Tax filing status: Your marital status on the last day of the tax year (December 31) determines your filing status. Until your divorce decree is final, you are married and have the choice of Married Filing Jointly or Married Filing Separately. An exception to that rule applies if you have a dependent child and you have been separated and financially independent from your spouse for more than 6 months, in which case you may be able to claim Head of Household filing status.
  2. Dependents: Tax credits and other tax benefits related to a child may be claimed on just one tax return. Your divorce settlement should specify which parent is entitled to claim each child as a dependent on their tax return, and you may agree to claim a child in alternate years.
  3. Maintenance, aka alimony or spousal support: For final divorce decrees issued after January 1, 2019, maintenance payments are included as income on the payor's tax return and are not included as income on the recipient's tax return. Child support payments are handled the same way.
  4. Transfer or withdrawal of retirement funds: If your divorce settlement requires you to transfer funds from your IRA, 401(k), or other retirement account to a comparable account in your spouse's name, this is generally treated as a rollover with no tax consequences. However, if you have to withdraw funds from a retirement account, you must pay the usual taxes. The amount of these taxes should be considered when calculating the equitable division of marital property.
  5. Sale of a home or other assets: The usual tax rules apply for recognizing capital gains or losses.
  6. Transfer of assets between spouses: Transfers of assets between spouses incident to divorce generally have no tax consequences; this includes any transfers that occur within one year of the divorce decree or which are explicitly mentioned in a divorce agreement. For example, spouses might transfer ownership of a car, house, stocks, bonds, or mutual funds, or a Health Savings Account, and neither will owe capital gains, income, or gift taxes on that transfer. Note that the spouse "inherits" the existing tax basis in the asset, not the current fair market value at the time of the divorce.
  7. Buy-outs: One spouse can buy out the other's interest in a property or business without tax consequences as long as this is documented in the divorce agreement as part of the equitable distribution of property. Buy-out payments can be made over time as long as the total amount is paid off within six years of the final divorce decree.

Tax-Wise Divorce Lawyer Serving St. Charles, Illinois

The attorneys of Weiler & Lengle P.C. are committed to providing the sound legal and financial advice you need to ensure your post-divorce security. Contact us in our St. Charles office at 630-382-8050 for a free consultation. We serve clients in Kane County including the communities of Batavia, Elgin, Geneva, Pingree Grove, and St. Charles.

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