The news that Angelina Jolie filed for divorce from Brad Pitt should only come as a surprise to you if you are living under a rock. So how could you possibly relate to this Hollywood power couple’s divorce? You’d be surprised, the difference may just come down to a few extra zeros. Whether you work on a movie set or in an office, here are some things you should know about divorce and taxes.
Filing status. It is an important factor when computing taxable income under the federal income tax in the United States. The federal tax filing status defines the type of tax return form an individual will use. Filing status is based on marital status and family situation. The filing status is determined by the last day of the tax year. Jolie and Pitt dated many years before marriage as they awaited the legalization of gay marriage. Despite many years of dating, and even having children together, since they weren’t legally married in the years before marriage, they were considered unmarried for federal tax purposes. Now that the two are legally separated, they can file as unmarried where they reside, in the state of California where they wed. It differs from state to state, and Texas does not recognize legal separations.
Wedding Ring. So the marriage is over, do you really want to keep your wedding ring? Actually yes, many divorcees find they can help with the divorce expenses by selling it. While yours may not be worth the $260,000 plus that Jolie’s was, you could still put a dent in your legal fees. But who has the right to it? In Texas, generally, wedding rings are construed as gifts, making it separate property. However, there are some exceptions for family heirlooms. Texas courts generally recognize the unique value of an heirloom to a family member.
Spousal Maintenance. Brad Pitt’s net worth is listed as $240 million, while Jolie’s net worth is a measly $160 million. We can all relate, right? Ok, maybe not. It’s no surprise that Jolie is not asking for spousal support. But if she were to, in Texas it would be based on the minimum needs of the parties. For tax purposes, spousal support is taxable to the recipient as ordinary income. However, it is usually deductible to the payor as an “above the line” deduction. For alimony to qualify as a federal income tax deduction, payments typically must be court ordered and you must be divorced. Also, you cannot be living under the same roof at the time of the payments unless you meet a court-ordered exception.
Whether you are a multi-millionaire or part of the working middle-class, the issues raised during a divorce are faced by both sides. Either way, it is important to know where you stand on divorce and tax matters that can and likely will affect the rest of your life. If you have questions about your taxes, contact your certified public accountant.