The Tax Implications of Your New Jersey Divorce

The Tax Implications of Your New Jersey Divorce

Bergen County NJ Divorce Taxes Lawyer As tax season approaches, questions about the tax implications of your New Jersey divorce will undoubtedly arise. Whether you are separated, currently involved in divorce proceedings, or newly divorced, the decisions that you make during this time are extremely significant. In this article, we will outline the various factors to consider when handling your taxes, preparing you to make informed decisions that serve your financial best interests.

Filing Status

Your “filing status” is the way in which you explain your marital status or family situation when filing your taxes. Under New Jersey law, your filing status must be reflective of your marital status as of December 31st of the applicable year. Essentially, this means that if you chose to separate or filed for divorce prior to December 31st, you still retain the option of proceeding as “married filing jointly” or “married filing separately.” In addition, you and your spouse may agree to postpone finalizing your divorce in order to receive the tax benefit that often comes from filing jointly. Conversely, if you have reservations about your spouse’s compliance with the law when reporting income or withholding, or you are concerned about hidden assets, it may be advisable to file as an individual. Your divorce attorney and accountant can advise you based on your specific circumstances.

Children and Claiming Dependents

If you are currently involved in the divorce process, you and your spouse may agree to split the exemptions with regard to your children. In other words, one spouse can utilize the deduction, while the other can utilize the exemption. If your divorce is finalized, standard protocol is that the primary custodial parent claims the children and receives the tax benefit. As for child support, these payments have no effect on taxes for the paying parent or the parent receiving payments. In other words, you can not deduct child support payments that you provide, and you cannot claim child support payments that you receive as income.

Alimony or Spousal Support

There are two distinct situations with regard to alimony, depending on your current stage in the divorce process. If your divorce has been finalized and you are providing alimony or spousal support payments, these payments are tax deductible, meaning the payments that you provide can be reflected as a deduction on your taxes. If you are divorced and receiving alimony payments, these payments are taxable, meaning that you will be required to pay taxes on the money that you receive as if it was some other form of income. The second situation occurs if you are currently involved in divorce proceedings and receiving what is known as “pendente lite” alimony. Pendente lite alimony is temporary financial support provided by one spouse during a divorce that allows the receiving spouse to maintain a lifestyle similar to that enjoyed by both spouses during the marriage. If you are receiving pendente lite alimony, it is critical to request that it is set apart and deemed non-taxable. Otherwise, you may have to pay taxes on the support as you would if you were receiving spousal support after your divorce.

Division of Assets

The tax consequences involved in the division of assets process can be complex and extensive. For example, your decisions regarding the marital home, sale of certain property, and retirement accounts will spell significant tax implications for you and your spouse. With regard to your marital home, if one spouse buys out the other’s equity in the property, the person who will now be the sole owner of the property will be entitled to deductions such as mortgage payments and property taxes. If you choose to sell the property, you may both be required to pay capital gains taxes on the profit from the sale. When making decisions regarding retirement accounts or 401k’s, consider that if you choose to liquidate the account, you will have to pay taxes on the amount as income. If you choose to divide the account and not to liquidate it, you can avoid the negative tax impact.

Clearly, tax considerations during and after your divorce are complex and extremely important for your financial future. Consulting with a knowledgeable divorce attorney, an accountant, and other experts such as appraisers and financial analysts can help you to ensure that you make the best choices for your unique needs. Fortunately, lawyer’s fees spent while discussing tax issues during your divorce, and fees paid to other experts for tax-related consulting, may provide you with an additional deduction during tax season. For additional information and the answers to your questions, contact our skilled New Jersey divorce attorneys today at 201-397-1750 for a cost-free consultation.

Leave a Reply

Your email address will not be published.

Read Our Latest Blog Posts

  •  What to Know About Stepparent Adoption in New Jersey
  •  Why is Proving Paternity Important?
  •  What is the Difference Between an Uncontested and Contested Divorce?