Illinois couples who are going through a divorce may not have considered the possibility of tax problems as a result of their marital dissolution. Some issues that are overlooked before the decree is finalized may come back to haunt divorced couples years down the road. But taking the time to understand the relevant tax laws can help protect financial interests and achieve a favorable division of property for both parties.
Disagreements about claiming exemptions for children and head-of-household status can be addressed by making certain that tax Form 8332 is properly executed. This form may be used to prove which parent is entitled to claim the child during tax time. Head-of-household status can also be addressed in the divorce decree to prevent any future tax implications.
Taking the time to fully understand the property settlement issues can also ensure that one party does not unexpectedly end up with a heavier tax burden than the other. Take, for example, a hypothetical divorce settlement that awards a wife the marital home and a Roth IRA, while the husband receives stocks meant to be of equivalent value. While these items may have the same monetary value, making it appear to be an equitable settlement on its face, the wife likely has a significantly smaller tax burden because of the tax-free nature of her items, whereas the husband may have to pay taxes on the stocks if he elects to sell them.
Taxes may not be the first thing on Rockford residents’ minds while negotiating a divorce, but such concerns may be worth a second look to avoid any tax headaches once all the paperwork is finalized. Many people can be confused and intimidated by the legal process. Nevertheless, those individuals who make an effort to organize their personal information while keeping the lines of communication open may find that the financial aspects of their divorce are less stressful than initially anticipated.
Source: Huffington Post, “Downgrading Divorce From Crisis To Process In The Workplace,” Deborah Moskovitch, March 1, 2012