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St. Charles IL divorce attorneyWhen going through a divorce, you may not have future consequences at the top of your list of priorities. Many people either forget about the long-term consequences of divorce or ignore them. Either way, not considering the long-term impact of your decisions can cause more stress in the long run. The downfall for many people going through a divorce occurs during the asset division process. You may be focused on your assets and fighting to get what you believe you deserve in the moment, but it is also necessary to understand the long-term effects of your decisions, including the implications for your taxes after divorce.

Things to Keep in Mind About Taxes During Divorce

When it comes to dividing your property and debts, taxes should also be a part of the equation. Even if tax issues are not an immediate concern, they can impact your overall financial health in the long run. When you go through the asset division process, here are a few things you should take into consideration concerning your tax situation:

  • Your tax filing status will likely change. Most married couples file joint tax returns, but once you are divorced, you will no longer be “married filing jointly,” but rather, “single.” This can change the amount of tax that you owe come tax time, depending on your income.

Kane County divorce attorneyApart from acknowledging how much will be needed for rent and basic monthly expenses after a divorce, it is all too easy, and common, for divorcing couples to find themselves shelving the financial aspect of the split until after the process is finalized. When you consider the emotional toll of the end of a marriage and additional stressors such as parenting plan arrangements, a potential relocation, and maybe even a new partner for one or both parties, money is often one of the last things couples wish to think about. This can be especially harmful for those who have very limited funds to begin with, or for those who have little to no employment options when the marriage unravels. 

The Importance of a Financial Game Plan

No matter how much or how little money you have to work with, the lack of a financial game plan can result in a divorce that does not turn out in your favor. For example, if you and your spouse were already in serious debt prior to the separation, those debts may only get worse and become more unmanageable if they are ignored. As overwhelmed as you may already be, avoidance is never the answer where your financial well-being is concerned, especially when you are about to experience a significant shift in income and overall lifestyle due to the split.

Why It Pays Off to Address Financial Matters Early On

Whether you have had minimal time to prepare, are currently a stay-at-home parent and do not know where to turn for help, or are simply scared and are avoiding money matters because your mind is on overload, making a plan to address finances early on can help you turn the situation around. Here are three reasons why addressing your finances is important:

Posted on in Divorce

Which Tax-Filing Status Should You Use After Divorce?April is normally the end of tax season, though the U.S. has extended the deadline to July 15 for this year. Still, it is good to get a headstart on filing your federal income taxes if you are dealing with new circumstances, such as your recent divorce. Depending on when your divorce was completed, you may have a decision to make about your tax-filing status. If possible, filing a joint tax return with your former spouse will qualify you for a greater standard deductible and other deductibles and credits. However, you may be forced to file a separate tax return.

If Your Divorce Was Completed by Dec. 31

If you finalized your divorce during the 2019 tax year, then you are considered divorced for the entire year and must file separately. The standard deductible for filing as a single adult is half the amount of what you would receive if you filed a joint tax return. You can receive a higher deductible if you file as the head of the household. In order to qualify, you must:

  • Be considered unmarried for the tax year
  • Have paid more than 50 percent of your household expenses
  • Have lived with a dependent for more than half the year

Because of these requirements, the divorcee with a majority of the parenting time is usually the only one who can file as the head of the household. You could both file as the head of the household if each of you has the majority of the parenting time for one child.

Costly Mistakes to Avoid in a High Asset DivorceA couple in a high asset divorce has more at stake in the division of property – and more to lose if they make a mistake. A poorly conceived divorce agreement could cost you a small fortune in lost or squandered assets. Once the agreement is approved, you will not get a do-over unless you can prove that your spouse intentionally deceived you during your divorce or you signed the agreement under duress. To avoid having remorse over your high asset divorce, you should do your best to get your agreement right the first time.

Dig Deep

The main way that a high asset divorce is different from other divorces is the number and variety of marital properties. You need to thoroughly investigate your spouse’s finances to see whether there are hidden assets, such as:

  • Undisclosed bank accounts
  • Marital assets within a business
  • Business assets purchased with marital money
  • Secret retirement accounts
  • Secret collections of luxury items
  • Undisclosed real estate
  • Marital assets being loaned to a friend

It is fraudulent for your spouse to hide marital assets if your spouse is actively trying to deceive you. Your spouse might not be at fault if you overlook assets that a reasonable investigation would have discovered.

How Divorce Affects Tax Filing Status, DependentsThe alimony deduction for federal income taxes has been in the spotlight this year because of looming changes to the federal tax law. As previously discussed, divorcees who finalize their divorce after December 31, 2018 will no longer be able to claim the spousal maintenance they pay as a tax deduction or be required to report payments they receive as taxable income. Child support payments are already treated in this way. People with existing divorce agreements or who finalize their divorce before 2019 should be able to continue using the alimony deduction (in which the payor is allowed to deduct alimony from their taxable income, and the recipient must report alimony as taxable income) indefinitely, although the long-term consequences of the new law are still unclear. However, there are other ways in which divorce affects how you file your taxes.

Filing Status

Your tax filing status may change if you are newly divorced or in the process of getting divorced. Whether you file as single or married will depend on when you divorced:

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