As most Americans know, the Internal Revenue Service plays a pivotal role in the lives of people throughout the country, including every Texan. Fewer Americans know, though, just how big a role the IRS plays when it comes to taxes on newly divorced couples.
Divorce alone brings considerable emotional stress and sometimes a lot of drama. Other than issues surrounding spousal and child support and child custody, no other issue can create more problems and trouble in the first year after divorce than property division.
The problem begins when a couple has to identify and list all assets and properties, including checking and savings accounts, stocks and bonds and retirement accounts and then classify them as marital or nonmarital assets. Although this is a necessary step so that both parties can take walk with their fair share of communal assets, the process alone can be quite tiring.
Now add into the mix the complications of taxes once the divorce is final. If one spouse has kept the marital house, he or she can claim the standard tax deduction for mortgage interest, a tax paid previously by the couple. This disadvantages the spouse who did not take the property.
Whoever is able to claim children as dependents also benefits when it comes to tax deductions – although IRS rules around this have changed in recent years, requiring some level of cooperation between former spouses. And because the amount of the deduction can significantly cut someone’s tax liability, such cooperation may not be forthcoming from the spouse who will not benefit.
These examples show how dealing with tax concerns may end up taking considerable time and attention after divorce. Under such circumstances, one or both parties would benefit by seeking expert legal advice on how best to divide marital property and get the most from available tax breaks.
Source: Reuters, “What’s even worse than a divorce? For some, it’s the taxes,” Lauren Young, April 10, 2014.