Getting through a divorce is overwhelming; whether or not you were the one who chose to leave your marriage; you must rearrange almost every aspect of your life. The task of family lawyers is to help clients think clearly about how their lives will be after divorce and to make a feasible plan for being financially independent. While family members and friends who have been through a divorce are the best sources of advice about co-parenting with your ex-spouse and about dating after divorce, family law attorneys are in a unique position to give clients unbiased and credible advice about managing their finances after a divorce. You probably know more about your clients’ finances than your clients’ friends do, even if the clients freely confide in their friends about their money problems. It is in the interest of family law attorneys to publish informative content on their website to help people who are considering divorce and who are representing themselves in their divorce or parenting plan cases make wise decisions about their post-divorce finances. Here are some tax planning tips to consider.
Tax Planning: What Does and Does Not Count as Taxable Income?
Filing income taxes is stressful, even if you are young and single or even if you are happily married. By the time you finish paying taxes, you always end up with less money than you think you had, even though the IRS seems to think that you are rolling in dough. Things only get more complicated after you get divorced. The reason Divorce Monday is a thing is that couples hope to simplify their tax situation by filing for divorce at the very beginning of the year in order to make a clean break between tax years. Divorce Monday is where couples file for divorce on the first business Monday of the year; there are more divorce filings on this day than on any other day of the year, but this only solves one divorce-related tax problem.
There is still the question of which divorce-related transfers of money are taxable and to whom. Child support payments are not taxable income; the idea is that the children, not tax-paying parents, are receiving the money, and the parents are already getting a tax break by claiming the children as dependents. Until the end of 2018, alimony counted as taxable income for the recipient and as a tax-deductible expense for the paying spouse. Now, the court order that formalizes the alimony award must indicate whether the alimony is taxable for the recipient and tax-deductible for the paying spouse; this rule applies whether the alimony award arises from a marital settlement agreement (MSA) or a judge’s decision at trial.
Since the courts divide marital debt as well as marital assets, many recently divorced people apply for various kinds of debt relief since, on a single income, they cannot afford the payments on their share of the marital debts.
Claiming Children as Dependents on Tax Returns
Dividing parental responsibility for the financial support of children sounds simpler than it is. The parents agree to a parenting plan, and then, based on each parent’s income and number of parenting days in the year, the court calculates child support according to a legally determined statewide formula. This is not the whole story, though. The parents must also agree on matters such as which parent must carry health insurance coverage for the children and which parent may claim the children as dependents on his or her tax returns. These issues are sometimes a source of conflict in divorce.
How Family Law Attorneys Can Help Clients Cope With Post-Divorce Tax Matters
Family law attorneys must counsel their clients about all of the legal and financial matters associated with divorce. Sometimes parents are surprised to find out about what a tough time they will have financially after divorce, and this leads to ex-spouses arguing about every parenting-related expense and eventually going back to court and spending more money on litigation. By the time the children reach adulthood, everyone is broke, and everyone is fed up with each other.
If your clients have ever been caught off guard by one of the ways that divorce and co-parenting can affect their taxes, look at this as an opportunity to educate all of your clients about it. You should write questions about them on the FAQ page of your website. Tax questions are also a good subject for digital marketing content, such as blog posts and videos. You do not have to advertise your law firm in this content; by providing straightforward answers to clients’ questions, you are enhancing your law firm’s reputation.
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