Taxes can be a big factor during a divorce, especially when it comes to how taxes will reflect major changes such as alimony and the child credit. There are certain measures one can take to prepare for those changes and learn how certain aspects of a divorce will affect finances overall, particularly when it comes to filing taxes in California. If each party understands the tax implications, then each can make an informed decision and avoid being blindsided once the first tax season after divorce rolls around.
One area that will affect taxes is alimony. If someone is paid alimony, that recipient will typically need to pay taxes on that alimony payment. The payments can be tax deductible for the person paying. With higher income couples, this amount can be quite significant.
For those with children, decisions about who will claim the child and get the child dependency credit must be worked out before either party files. The parent who has the child most of time will usually utilize this credit. However, some parents opt to alternate who will claim the child from year to year, especially if joint custody is the order upon which both have agreed.
Regardless of income bracket or how amicable a divorce may be, the tax season can be unsettling or challenging if these issues are not decided beforehand. As for alimony tax issues and child dependency credits, a decision worked out during the divorce can make the tax season simpler and less surprising. California residents may benefit from inquiring as to how all tax issues may be impacted after a divorce has been finalized.
Source: onwallstreet.com, "8 ways to make divorce less taxing", Ingrid Case, June 6, 2016