Taxation Divorce Issues Attorneys in Waterford, Michigan
Any divorce is likely to have tax implications. Beyond a change in filing status and questions about which parent can claim the children as dependents, issues like spousal support (alimony) and the division of a high-value marital estate raise important tax questions that should be considered when deciding how to deal with these issues. The knowledgeable and experienced Waterford & Clarkston taxation divorce issues lawyers at Clarkston Legal can help you navigate difficult yet critical questions such as these, ensuring that important taxation issues are properly considered when negotiating or litigating a divorce.
Spousal Support – Payments No Longer Deductible
Traditionally, periodic payments for alimony in Michigan divorces were deductible for the payor and counted as taxable income to the payee. These support payments included payments to a third-party, such as when a former spouse is paying the mortgage on a house occupied by the other former spouse and the children. This arrangement acted as an incentive to pay more in spousal support, since the paying party could benefit from the tax deduction, and the receiving spouse was generally in a lower tax bracket and could more easily bear the tax impact of the additional income.
This arrangement is no longer the case since the passage of the Tax Cuts and Jobs Act of 2017. Now, alimony payments are no longer deductible by the payor, and they are no longer included in the taxable income of the recipient. While this change makes receiving spousal support even more attractive than before, there is less of an incentive on the part of the payor. Although this change in tax policy may mean more tax revenue for the government, it radically alters how parties in a divorce will approach the issue of spousal support. Make sure your attorney is aware of this change and can counsel you on the tax impact of spousal support in your divorce, whether you would be the payor or the payee.
Property Division – Retirement Plans and Property Transfers Affect Your Taxes
The division of marital property is another area where complex tax considerations should be taken into account. For instance, whether all or some portion of a spouse’s retirement assets will be divided by the court or marital settlement agreement is likely to have tax implications. This includes the division of a deferred compensation plan such as a 401(k) or IRA, where dollars are not taxed until they are received, as well as defined benefit plans such as pensions, which become taxable income when the owner reaches retirement age. Non-qualified plans and employment-related benefits such as stock options have tax implications of their own, as well.
The transfer or sale of the family home or other property will also generally be considered a taxable event. A property transfer can be a gain or a loss depending upon the person’s basis in the property, and the tax consequences could be favorable or adverse. Property transfers can have a very complicated tax treatment, and it is worth discussing the tax consequences of any transfer with your attorney.
Gain an Experienced Advocate in Your Waterford & Clarkston Divorce
For advice and assistance on taxation divorce issues in Waterford & Clarkston, call Clarkston Legal for a free consultation with a knowledgeable and experienced Michigan divorce lawyer.