Divorce / Family Law
Divorce is a difficult decision that can be fraught with emotional, financial, and legal challenges. One important factor that couples considering divorce must take into account is timing. The timing of a divorce can have significant implications for both parties, particularly with respect to taxes and finances. It can also impact any children involved in the divorce. As a family law attorney, I have seen firsthand the ways in which timing can shape a divorce and its aftermath. In this article, I will explore some of the key issues related to timing in divorce, including tax and financial considerations, as well as the effects on children.
Tax Implications of Timing a Divorce
The timing of a divorce can have significant implications for taxes. Couples who are considering divorce should be aware of the potential tax implications of their decisions. Here are a few key considerations to keep in mind:
One of the most significant tax implications of a divorce is the change in filing status. Married couples typically file their taxes jointly, but once a divorce is finalized, they will need to file as individuals. This can impact their tax liability and potentially result in a higher tax bill. It is important for couples to consider the impact of their filing status when determining the timing of their divorce.
Alimony, or spousal support, is a common feature of many divorce settlements. Under the Tax Cuts and Jobs Act (TCJA) of 2017, alimony payments are no longer tax-deductible for the paying spouse, and they are no longer taxable as income for the receiving spouse. This change took effect for divorce agreements signed on or after January 1, 2019. Couples who are considering divorce should be aware of the impact of the TCJA on their alimony payments.
Dividing property in a divorce can also have tax implications. For example, if one spouse is awarded the marital home as part of the divorce settlement, they may be responsible for paying capital gains taxes on any appreciation in the value of the home when they eventually sell it. Couples should consult with a tax professional to understand the potential tax implications of any property division decisions they make.
Financial Implications of Timing a Divorce
In addition to tax considerations, the timing of a divorce can also impact a couple’s finances. Here are a few key financial considerations to keep in mind:
If a couple has significant debt, it can impact the timing of their divorce. For example, if one spouse has significant credit card debt or other liabilities, the other spouse may be reluctant to file for divorce until the debt is paid off. Alternatively, if both spouses have significant debt, they may need to work together to pay off their debts before finalizing their divorce.
Retirement accounts are often a significant asset in divorce settlements. If one spouse has a 401(k) or other retirement accounts, the other spouse may be entitled to a portion of those funds. However, dividing retirement accounts can be complicated, and it may be necessary to obtain a Qualified Domestic Relations Order (QDRO) to ensure that the division is done correctly.
If one or both spouses own a business, the timing of a divorce can impact the value of the business and the way it is divided in the divorce settlement. For example, if a business is sold during the divorce process, the proceeds may be considered marital property and subject to division. Alternatively, if the business is sold after the divorce is finalized, the proceeds may belong solely to the owner. It is important for couples to consult with a financial professional and an attorney with experience in business valuation to understand the potential impact of a divorce on a business.
Another financial consideration in divorce is insurance. Couples who are covered under a spouse’s health insurance policy may need to obtain their own coverage after a divorce. Similarly, life insurance policies that name a spouse as a beneficiary may need to be updated to reflect the new circumstances.
Considerations for Children
Divorce can be particularly challenging for children. The timing of a divorce can impact the way children experience and cope with the changes in their lives. Here are a few key considerations for couples who are considering divorce and have children:
Age of the Children
The age of the children can impact the way they experience a divorce. Younger children may struggle to understand the changes in their lives, while older children may be more aware of the implications of divorce for their families. Couples with children should consider the impact of the divorce on each child and their unique needs.
Children often benefit from stability and routine. The timing of a divorce can impact the stability of a child’s life. For example, if a divorce occurs during the school year, it may disrupt a child’s academic performance and social life. Couples should consider the impact of the divorce on their children’s stability and work to minimize any disruptions.
If you are considering divorce, it is important to understand the potential impact of timing on your taxes, finances, and children. As a family law attorney, I have experience helping clients navigate the complexities of divorce and find solutions that work for them and their families. If you have questions or concerns about the timing of your divorce, I encourage you to schedule a free consultation with my firm. Together, we can explore your options and develop a strategy that meets your needs. Contact Mark Godbey at 513-241-6650 or [email protected]
Please note that Godbey Law LLC does not provide tax advice. Please consult with a qualified tax advisor and CPA about your unique situation.