New York estranged couples should be prepared for how their taxes will be affected once their divorce is finalized. Understanding the impact it can have on their tax situation can help them avoid agreeing to divorce settlement terms that can cost them in the future.
Historically, alimony payments have been deductible by the payer and included in the recipient’s income. However, as a result of changes to federal tax law, this will no longer be the case for divorces finalized after Dec. 31, 2018. For child support payments, there are no tax deductions the payer can claim, and the recipient is not required to pay income tax on those amounts.
Assets and taxes can be a complicated situation, even without factoring in a divorce. There are different tax implications depending on whether jointly held assets have been simply divided in a divorce or sold thereafter. Capital gains taxes may have to be paid on divided assets if the ex-spouse who owns the assets opts to sell them in the future.
Filing status is another tax aspect that is affected when a couple ends their marriage. If the divorce is finalized by the end of the year, each party will use single status. If they are separated but not yet divorced, they can file jointly or use the “married filing separately” category.
In a high asset divorce, couples usually place their primary focus on property division. However, the tax implications should not be overlooked, and they might want to meet with their respective attorneys to learn more about the subject.