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Tax Implications
Some issues with tax consequences include the following.
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Exemptions. You can usually negotiate which parent claims the
tax exemption for each child.
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Alimony versus Child Support. Alimony is tax deductible to the
payer and included in the income of the recipient. Child support is
not. So you can sometimes save taxes by playing with the labels of things as
"alimony" versus "child support." (The law has requirements for what
kind of payments can be alimony.)
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Alimony versus property settlement. Property settlements also are
not tax deductible. So if a large payment is made, there can be a
big tax difference as to how it is labeled. Be careful: 1-time
lump-sum payments will be treated as a property settlement, no
matter what you call them. For more details, see the discussion in
the alimony payment portion of the program.
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Pension payments. A lump-sum payment for a pension is not
taxable to the recipient, whereas sharing in the actual payments
later is taxable. You should take this difference into account when
deciding which to use.
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IRAs versus Pension Plans. Certain IRA's will pay out tax free.
Other IRAs, and all pension plans, will have at least part of the
payouts taxed. So when you divide up the retirement assets, be
aware of the characteristics of each one.
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Business buyouts. Business buyouts can often be structured as taxable
or non-taxable to the recipient. Also, if taxable, they can often be
structured to be taxable at higher "ordinary income" rates or lower
"capital gains" rates.
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Selling a home. If, for example, you moved within two years
before the divorce, you can not sell your home when you divorce
without paying tax.
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Disclaimer: We are not giving legal advice. No warranties. We disclaim all legal liability. More...
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