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Divorce and Taxes

Divorce and Taxes

Taxes are often overlooked during a divorce. However, there are tax implications for just about every decision you make during a divorce. At Leah Bishop, L.L.C., we will help you recognize these issues and craft your divorce settlement in a way that ensures you get the most value out of your marital estate, while minimizing negative tax implications.

Tax Issues in Divorce

Even the simplest divorces may involve serious tax implications. The following are just a few of the most common tax issues that arise during a divorce:

  • Maintenance payments: Spousal maintenance has tax implications for both parties. These payments are tax deductible for the person making the payments and will be taxed as income for the recipient.
  • Property: Property and assets transferred during a divorce are not taxed. However, the person who is awarded an asset during a divorce takes on that asset with no step-up basis. It is important to know the basis of an asset so that you can factor in tax consequences such as capital gains.
  • Filing status: Your federal income filing status is determined by your marital status on the last day of the year. If you and your spouse divorced before the last day of the year, you will have to file as single or head of household.
  • Dependency exemptions: In the state of Colorado, the dependency exemption can be allocated between parents in proportion to their support obligations. However, only the custodial parent can claim head of household and the child care credit and earned income credit.
  • Retirement accounts: Cashing out a retirement account has tax implications for both parties. The person receiving the funds must pay income taxes, and the retirement account owner may pay a penalty. If you have received retirement account funds as part of your settlement, it may be best to keep the funds where they are or transfer them to your own IRA.
  • Life insurance: Premiums on court-ordered insurance policies may be tax deductible.

Our Fort Collins divorce attorneys will evaluate all aspects of your divorce, from child custody and division of assets to maintenance to determine the tax issues that exist in your case. We will help you create a plan that addresses these issues and minimizes any negative tax consequences.

Contact a Larimer County Lawyer for Divorce Tax Issues

To schedule a consultation with Leah Bishop, L.L.C., contact us online or call 970-224-5555.