5 Divorce Tax Cautions - Be Informed Before You Sign
Listed below are some tax pitfalls of divorce. Mistakes happen in divorce for lack of knowledge, and those mistakes can create additional costs to divorce that could have been avoided.
1. Not knowing how to execute an institution to institution transfer of retirement funds and having to pay taxes on those funds.
Financial institutions’ forms are often difficult to understand. They can be formatted or have questions that if answered wrong, could create unintended consequences such as taxes and penalties.
2. Not knowing when you can withdraw retirement funds from a retirement account without paying a 10% penalty if you are younger than age 59 1/2.
In divorce there are exceptions to the 10% penalty for distribution of certain types of retirement money to the non-participant.
3. Failing to realize that the person who receives alimony will be taxed.
Taxes on alimony should be added to monthly budget expenses, and some recipients of alimony should send estimated tax payments quarterly to the IRS and their state income tax agency.
4. Failing to have tax credits/refunds or capital gains/losses carried forward as divisible assets listed in the settlement agreement.
You may unintentionally give your ex-spouse a parting gift. Paying attention to details is vital during divorce.
5. Not deducting your attorney fees that are attributable to receiving alimony or retirement funds, if you qualify.
Do you know if you qualify? This information can potentially save thousands of dollars.
The above is not tax advice. The cautions are for consideration and should be discussed with a tax advisor.
Each divorce has its own unique facts and circumstances. Divorce Financial Planners provide financial information support and settlement analysis to clients who want to make informed decisions.
Understanding Before Signing - Divorce Financial Planners Make a Difference.
Courtesy of Sandy Arons http://www.getasmartdivorce.com
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