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IT’S ALWAYS TAX TIME WHEN NEGOTIATING DIVORCE SETTLEMENTS

Yee Law Group Inc. > IT’S ALWAYS TAX TIME WHEN NEGOTIATING DIVORCE SETTLEMENTS

Taxes affect and control every aspect of our lives.  Everyone knows April 15‌th is the deadline for filing Income Tax Returns but, when negotiating divorce settlement agreements, there are several issues which may arise which have significant tax implications for clients, regardless of the date.  An individual who is not properly counseled on these issues may believe a proposed agreement is fair when, in reality, the proposal is mostly one-sided. A few examples of areas in which these issues arise involve the child dependency exemption,  division of retirement accounts, capital gains, sale of the marital home, deduction of mortgage interest, whether to file jointly or separately, etc. Other pertinent concerns are the fact that alimony payments are deductible, while child support payments are not.  Similarly, the spouse who receives alimony must report that as income on his or her Income Tax Returns. Not so for child support received. Some legal fees are deductible, but most are not, unless the fees were incurred as a result of your attorney giving you tax advice.   If you have to hire someone such as an appraiser, an accountant, or other expert to evaluate a marital asset, that is or may be deductible. All of this is highly specialized and complicated, but it doesn’t mean that your divorce attorney has to be a tax expert. A good and resourceful attorney, like a top divorce lawyer Baltimore has to offer, should be knowledgeable and experienced enough to know what the tax issues are so that he or she can seek the appropriate help and guidance from other experts when necessary.  Many clients have their own accountants or tax preparers but, when couples go through a divorce, that individual may have a conflict of interest and not be entirely impartial. A divorce attorney needs to recognize this and have a qualified tax expert review a proposed settlement agreement to provide an unbiased opinion to the client its potential tax effects.  Clearly, this must be done before any agreement is signed, as part of the negotiation process.

When people are going through a divorce, they are often under extreme emotional and, oftentimes, financial stress.  This may lead to making hasty and uninformed decisions, which can lead to critical and costly errors. Remember, once that settlement agreement is signed, it becomes a binding contract and you cannot later change your mind.  More importantly, many of the examples cited above are going to change in 2019 as a result of changes in the tax law. This will make negotiating divorce settlements more complicated and specialized than ever. For this reason, advice from an experienced divorce or family law attorney is critical.  Making a tax mistake in a divorce proceeding can be very serious, as are all tax issues. This may result not only in an inequitable divorce settlement, but IRS fines and/or penalties as well.

If you are in the process of or thinking about a separation or divorce, the time to get the advice you need is now, at the very beginning of the process, before it’s too late.

 

Thanks to our friends and contributors from Greenberg Law Offices for their insight into negotiating divorce settlements.