Taxes are frequently at the forefront of New Jersey divorce discussions, and may be considered at numerous stages in the process.
Here, our East Brunswick divorce lawyers outline some of the taxing implications of divorce, and how your attorney can help you navigate them.
Filing Your Taxes in New Jersey After Divorce
Your tax status - that is, whether you are filing as single, head of household, or jointly) is determined by your marital status as of Dec. 31st. That means the timing of the divorce can have considerable implications for your taxes.
Most people file taxes jointly during their marriage because there are a number of tax breaks for married couples. Your withholdings from your employer are tallied based on your marital status. When you get divorced, you must file as single or head of household.
If you divorce late in the year, you may end up owing a considerable amount to the government in taxes because you had withholdings throughout the year based on having a status of “married,” yet you were single when it was actually time to file. One way to avoid this outcome is by waiting to file for divorce until after the new year. That’s not to say it’s a good idea to rush to finish and file right after the 1st of January. However, if you’re close to resolving your divorce case at the end of the year, it may be possible to wait to have it finalized until after the start of the new year. This is something you should talk about with both your New Jersey divorce lawyer and your accountant.
Claiming Children on Your Taxes After New Jersey Divorce
There are a host of tax considerations where children are concerned post-divorce. How parents share tax benefits of kids is a discussion that needs to happen before a divorce is finalized. The primary question is going to be who is claiming the child (or children) as dependents. In cases where both parents meet the IRS criteria for claiming the child, some common solutions are:
- Allowing parents to alternate years of claiming the children.
- Allowing one parent to claim one child and the other parent to claim another, and then alternating once the oldest can no longer be claimed.
- Allowing one parent the right to always claim both children, and offsetting this in other ways during the course of equitable distribution.
Courts will typically make the right to claim a child dependent on support payments being up-to-date.
Child Support Can Impact Taxes
Taxes are considered when child support is initially being set (and any adjustments made thereafter). That’s because child support is based in large part on each parent’s net income, or what they’re bringing home after taxes are taken out.
It’s common now with many Courts to use digital programs to tally what support payments should be. Numbers are plugged into the formula, and a ballpark figure is calculated. But those calculations should be reviewed with a fine-tooth comb because there could be errors with regard to who is claiming the child as a dependent on taxes. In some cases, such an error might result in the program counting the taxed amount as being too high, thus reducing the amount of child support. Hiring an attorney to review these agreements can help avoid these kinds of mistakes.
What About Alimony?
Alimony in New Jersey used to be taxable to both the recipient and the person paying it. That changed effective Jan. 1, 2019. That said, a divorce lawyer recognizes that alimony is based on a number of circumstances - including how much support the recipient needs and much the payor can afford. Substantial tax breaks - or burdens - should be weighed in the alimony calculation or reconsideration.
Working with an attorney can help you avoid costly mistakes when divvying up assets for the purpose of equitable distribution. Some assets may appear to have significant worth on paper, but factor in the tax implications, and their value is significantly less.
For example, certain stocks or properties may be heavily taxed when sold, depending on how much they’ve risen. You may sell an asset for a certain amount, but you’re ultimately profiting far less due to the tax implications.
Contact our East Brunswick Divorce Attorneys at (732) 810-0034 to schedule an appointment.