As the old saying goes, the only certainties in life are death and taxes. No marriage is guaranteed to last, but you can rest assured that you will have to pay taxes, whether you are married or divorced.
Actually, going through divorce can affect how much you owe in income taxes. It may require careful planning, negotiation and advocacy in court to avoid taking a big tax hit after your case is wrapped up.
What common elements of a Minnesota divorce can affect how much the parties must pay in taxes? Here are a few examples:
- Alimony and child support. A divorce settlement that includes spousal and/or child support can affect each former spouse’s tax bill. The payments may be considered income for the receiving former spouse, and the paying ex might be able to deduct the payments, depending on the provisions of the divorce decree.
- The child dependency exemption. This tax exemption can save you a lot of money, but only one parent might be eligible, depending on your child custody arrangement.
- Division of property. Splitting up valuable assets like a small business or stock portfolio can have significant tax implications. Thus, in some cases fighting for a particular piece of the marital assets can end up costing you money, at least in the short term.
- Filing status. Depending on the timing of your divorce or separation, there may be some ambiguity about whether to file your income taxes jointly or separately, which can significantly affect the size of the bill.
These tax issues are part of any divorce strategy, especially when the divorcing couple has significant assets.