Divorce Now or Wait Until the New Year?
The holiday season brings a whole lot of stress. If you and your spouse are already struggling to make your marriage work, this is an extra trying time. The planning for presents, parties, and family get-togethers may lead you — and many others like you – to put off dealing with any marital struggles until the new year.
But should you?
Let’s put aside the emotional aspect of putting on a brave face for kids, friends, and family at holiday gatherings. Instead, this post will focus on the financial issues in the decision.
You have two options when doing your taxes:
- If you and your spouse decide to get it over with now, and you are divorced by midnight of December 31, you will each file separate tax returns.
- If you are still married on or after January 1, you can choose whether to file jointly or separately.
In most scenarios, continuing to file jointly will save you both a lot of money. But that does not mean that you will have to continue to live under the same roof until you file your taxes.
A divorce can have negative or positive effects on your taxes this year. For example:
- The IRS does not tax cash or assets between divorcing spouses
- Dividing any assets gained during the marriage can force a capital gains tax (Couples can have $500,000 without being taxed. Individuals can have $250,000 without being taxed.)
- Selling your home will likely have a capital gains tax (unless you reinvest the money within two years)
- One partner keeping the house can force capital gains tax on the partner who does not live there
- Taxes will apply if your retirement fund is shared. When you divorce, it will be split and taxed if you live in a marital property state.
Taxes during a divorce can have nuanced benefits or penalties, so your attorney can help you think through the best ways to save money and divide assets.
As a word of caution: filing jointly also means that you are on the hook for any tax liabilities your soon-to-be-ex owes. If you suspect that your spouse may not be planning to write a check to Uncle Sam, the IRS could seek that money from you.
Any custody decisions you make will also affect your tax filings. If you get a divorce now, only the custodial parent will be able to claim the child tax credit.
The most important thing, just like with any other aspect of your divorce, is to get the right advice and not make any rash decisions. Your divorce attorney should be able to recommend you to a qualified tax advisor.
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