What Tax Issues Do I Need to Consider During My Michigan Divorce?

 Posted on December 18, 2020 in Divorce

When getting a divorce in Michigan, you will need to consider multiple types of financial issues. As you work to address legal fees and other costs, determine whether you will pay or receive child support or spousal support, and create a new budget that will allow you to cover your ongoing expenses, you should also be sure to understand how your divorce will affect your taxes. Having a thorough understanding of this financial aspect can help you better prepare for the future. 

Tax Implications After Legally Ending Your Marriage

Once your Michigan divorce is finalized, you may need to deal with a variety of tax issues, including:

• Filing status - While you and your spouse can continue to file taxes jointly while you are married, you will be required to file separate tax returns once you are divorced. If you were still legally married on December 31 of the previous year, you can file taxes jointly for that year. Since filing jointly may provide benefits for both of you, you may want to delay the finalization of your divorce until after the new year. If you do so, you should be sure your divorce settlement specifies how you will divide a tax refund or the obligations to pay any taxes owed.

• Dependents and tax credits - Claiming children as dependents can provide significant tax deductions, and parents may also be able to receive tax credits for childcare costs. If you and your spouse have children, only one of you will be able to claim a child as a dependent following your divorce. Your divorce decree should specify which parent will claim which child as a dependent each year. You and your spouse may decide how dependents will be claimed based on your individual needs and circumstances. For example, if you have two children, you may each claim one child as a dependent, or if you have one child, you may alternate claiming the child each year.

• Selling your marital home - While taxes will usually not apply to transfers of property between spouses, they may become a factor if you choose to sell your marital residence during your divorce. While capital gains taxes will usually apply to the profits earned from this type of sale, up to $250,000 of gains can be excluded from taxes if you file as single, or up to $500,000 can be excluded when filing as a married couple.

• Retirement accounts - Retirement savings in either spouse’s name may be transferred to the other spouse as part of a divorce settlement. For accounts such as 401Ks or IRAs, taxes will apply if funds are withdrawn before the account holder reaches retirement age. However, these taxes will not apply if a Qualified Domestic Relations Order (QDRO) is used to transfer funds from one spouse to the other.

Contact Our Novi, MI Divorce Lawyers

The attorneys of Elkouri Heath, PLC can advise you on the tax issues that you will need to address during your divorce, and we will help you make the right decisions to protect your financial interests. With our help, you can be prepared for financial success in the years following the end of your marriage. Contact our experienced Oakland County divorce attorneys today and schedule a free consultation by calling our office at 248-344-9700.

Sources:

https://www.thebalance.com/tax-planning-for-divorce-3193488

https://www.bnymellonwealth.com/articles/strategy/eight-critical-tax-considerations-for-divorcing-couples.jsp