Tax Day is upon us.
For divorce lawyers like me, it's the time of year when folks going through a divorce often struggle with the same question: What do we do about our income tax returns?
If that's you, here is a bit of obvious advice -- file an extension and talk to a lawyer.
It could save you money.
A lot of money.
When people think about the most difficult and expensive part of getting divorce -- aside from your legal bills -- deciding how to split-up property and agreeing about child custody top the list troubles. But the tax consequences of divorce can often sneak up on a couple, and get pretty costly.
Here are some things to think about:
• Married couples that file separately generally pay a hire tax rate than married couples that file jointly.
• If you file your tax returns separately you can amend your returns later to file jointly. But you can't file jointly and amend your taxes to file separately.
• If you get divorced before Dec. 31 you cannot file jointly for that tax year. Sometimes, a good divorce lawyer will suggest finalizing a divorce agreement after Jan. 1 as a way to save both parties from paying more in income taxes due to their split.
• Insisting on not paying one penny of spousal support because of bitter feelings or a broken heart could be the dumbest thing you can do. Here's why: Paying child support is not tax-deductible. Paying "unallocated family support," which covers child support and cash for your ex, is tax-deductible. So don't get emotional over your split. Talk to a lawyer. Coming to an agreement could be a win-win situation for both parties, especially at tax time.
• Rather than tap in to your pension consider agreeing on a "qualified domestic relations order." That way you can transfer tax-free money from a pension or retirement plan to your ex without paying taxes. And if your ex wants to take the money out later the tax liability will not be your problem.
Tax day can be even more complicated for gay married couples.
Even though a few states recognize gay marriage and a handful more, including Illinois, recognize civil unions, the federal government does not allow gay couples from those states to file jointly or received the tax benefits for being married. Gay couples also can face tax trouble when dealing with estate planning. When it comes the rights of inheritance federal tax rules aren't the same for gay and straight married couples.
Simply put, gay couples don't get the same tax breaks heterosexual married couples receive. So before you e-file your taxes on Monday consider buying yourself a little more time. It might just save you some cash.
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