What Are the Tax Implications of Divorce in Illinois?
Posted on August 21, 2024 in Finances and Divorce
Unfortunately, many people do not realize they have made serious tax missteps during their divorce until after the divorce is over. Every extra dollar you pay in federal or state taxes and capital gains taxes is money your family will not have. Determining tax implications to ensure you do not have to pay more than you must is essential. Divorce is emotionally draining and difficult for all those involved, even under the best of circumstances.
Taxes are likely the very last thing you are thinking about right now, yet at some point, taxes owed could become a significant financial burden. The time to consider how to protect against an unexpectedly heavy tax burden is during the divorce. Speak to a knowledgeable Wheaton, IL divorce attorney from Andrew Cores Family Law Group, who can help you arrange your finances in the most tax-advantageous way possible.
Does the Timing of a Divorce Matter for Tax Purposes?
Most people considering a divorce do not think about which month to file to minimize taxes. Each spouse's specific financial situation will help determine what issues to consider when filing for divorce. Perhaps it will not make much of a difference either way, but it is important to remember that marital status as of December 31st determines how taxes are filed.
If it is close to the end of the year, talk to an attorney or a tax professional about how filing a joint return vs. a single return will impact taxes. For some, filing joint marital taxes allows both spouses to maximize the standard deduction, reducing the amount of taxes to be paid. After the divorce, one parent can file as head of household to increase tax deductions.
Some parents alternate years for claiming the head of household deduction, with one taking the credit one year, and the other the next. If it is closer to the beginning of a new year, and there are serious issues in the marriage that dictate a divorce as soon as possible, these considerations may be more important than filing status.
Can Taxes Affect the Division of Marital Assets?
Illinois is an equitable distribution state rather than a community property state. This means marital assets are split fairly, but not necessarily right down the middle. Remember that retirement accounts, financial investments, and real estate all carry different tax burdens, including capital gains taxes. Certain investments can also trigger a tax payout. If a couple begins a business during the marriage, one spouse may buy the business interests of the other.
Alternatively, one spouse may receive additional marital assets to offset the other spouse keeping the business. If the business is sold during the divorce, capital gains taxes may result, which could be split. If one spouse keeps the business, they may gain certain tax deductions. Any joint debt you and your spouse have can potentially be written off as an expense at tax time. This is true whether the debt is split or one spouse takes on the entire marital debt in return for keeping more marital assets.
How are Child Support and Spousal Maintenance Taxed?
The paying parent cannot claim child support payments as a tax deduction, and the parent receiving child support does not have to report that money as income for tax return purposes. However, the parent who pays for a child's medical expenses is allowed to deduct those expenses, regardless of which parent claims the child as a deduction.
Spousal support is the exact opposite of child support for tax purposes. Spousal maintenance must be claimed as income for the receiving spouse, while the paying spouse is allowed to deduct spousal support payments on his or her tax return.
Contact a DuPage County, IL Divorce Attorney to Schedule a Free Consultation
When you choose a Wheaton, IL divorce attorney from Andrew Cores Family Law Group, you can be sure we will help you create the future you deserve, making the process as straightforward and easy as possible. In addition to ensuring you consider the tax implications of each decision made during your divorce, we are also highly skilled in negotiating marital asset division. Contact Andrew Cores Family Law Group today at 630-871-1002 to begin the divorce process by scheduling your free initial meeting.
