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Divorce – What It Does to Your Military Taxes

Monday, 04 February 2013

taxes_and_divorceWhen marital vows break down, most military people are thinking about their immediate needs; a lawyer, separate checking accounts, a property settlement and a fair distribution of assets. Unless tax time is just around the corner, chances are that most couples aren't thinking about the impact of divorce on their taxes. But divorce may have a serious effect on how you file your tax returns, and it might be something worth discussing well in advance of April 15th.

In a recent article on Huffington Post's Divorce section, "When the Vows Break: Divorce and Taxes," the author discusses the best ways to handle a tax filing for recently divorced couples. One way to make sure your taxes are filed correctly is to file for an extension and work with a lawyer. Perhaps most importantly, don't let your ex pressure you into filing by the deadline. It could save you a lot of money to take the extra time and get it right.

Your property settlement and custody agreement might change because of tax liabilities

One of the insights people gain when doing some research is how their property settlement will impact tax liability. In many cases, an ex-spouse might offer to make one lump sum payment from the sale of a business or other asset. While that may be easier for them than a monthly stipend, the resulting tax liability for the recipient could be significant. If this could be an issue in your settlement and you haven't yet signed the agreement, then wait! It is not uncommon for divorcing couples to revise a property settlement when they see how it will affect their taxes.

How can child custody affect your taxes? Believe it or not, child support is neither deductible for the payer nor counted as income for the recipient. However, alimony and spousal support is usually a deductible expense and counted as income for the recipient. This may explain why your spouse has offered a generous amount of spousal support and requested joint custody. Joint custody usually reduces child support and overall tax liability while lowering non-deductible cash payments. Here are some things to consider when thinking about your property settlement and custody agreement

Should you file individually or jointly in the first year after separation?

If you have recently separated and haven't yet filed for divorce, you have a few options for filing a tax return. Here are some things to consider when preparing for tax time:

  • Married couples that file separately generally pay a higher tax rate than married couples filing jointly.
  • If you file your tax returns separately you can amend your returns later to file jointly. But you can't file jointly and amend your taxes to file separately.
  • If you were divorced before the end of the tax year, you can no longer file a joint return, which explains why so many divorce lawyers recommend finalizing a divorce after January 1st. This may seem insignificant but it will save both parties from paying more taxes.
  • Have you been fighting your spouse about spousal support; insisting that there is no way they will get a penny besides child support? Most Colorado divorce attorneys will agree that this tactic could come back and shoot you in the foot. Uncle Sam doesn't consider child support tax-deductible, but "unallocated family support" is a tax-deductible expense. Ask your lawyer which is the best option for you.
  • Instead of tapping into your pension during a divorce and bearing the tax burden because of it, you can use a "qualified domestic relations order." This will allow you to transfer tax-free money from one pension or retirement plan to another without paying penalties or taxes.

How do gay couples handle tax time?

Taxes can be even more complicated for gay couples in states where marriage is permitted. As the number of states recognizing gay marriage continues to grow, and several more allow civil unions; the federal government has still not granted the tax benefits that come from joint filing. Gay couples also face a different set of tax burdens with regard to estate planning. The issues surrounding taxes and gay marriage will eventually be resolved, but it is more complicated to enact a federal law when it only affects a handful of states. Simply put, gay and lesbian couples are not getting the same tax breaks as heterosexual married couples.

If you have questions about any of the tax complications that come from marriage and divorce in Colorado, contact an experienced Colorado Springs family lawyer. An attorney with experience in divorce settlements will be able to answer any questions you have about the tax implications of divorce.

Photo Courtesy of Stuart Miles /

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