Columbus Divorce Tax Planning

In almost every divorce, it is essential to consider numerous tax issues.  When children are involved, child support and spousal support are often involved and they are treated very differently by the IRS.  The parent paying child support cannot deduct those payments and the parent receiving child support does not pay any tax on the support received.  Conversely, the parent paying Spousal Support can fully deduct their payments on their income tax returns and the parent receiving Spousal Support must report and pay tax on each payment received.

Often it is possible to use this difference to let Uncle Sam significantly assist the family.  If the parent paying support is in a much higher tax bracket after the divorce than the parent receiving the support, careful tax planning will allow them to shift some of the support to spousal support leaving the parent paying spousal support with an excellent tax deduction, greatly increasing his or her after tax income.  The recipient of the support, being in a much lower tax bracket, will pay a much lower tax, if any, and both parties can wind up with significantly more money than they would otherwise have had.

Child Dependency Exemption

Another important tax consideration in cases involving children relates to the potential for child dependency exemptions.  Careful consideration must be made as to the prospective incomes of the parents.  If one’s income is too low, there may be no benefit or very little benefit to that parent if awarded the child dependency exemption.  If one’s income is too high, there also may be no benefit to that parent of obtaining the right to the child dependency exemption.  Determining the most advantageous division of the right to claim a child is essential.  When there are two or more children who can be claimed, determining the best allocation between the parents of the right to claim the exemption for each child is equally significant.

The sale of real estate including the marital residence can have tax consequences that need to be understood.  Similarly, assets that have appreciated over the years such as stocks will have important tax consequences if they are to be sold.  Businesses and Professional Practices will also face important tax issues when they are being sold or divided.

The growth in value of retirement accounts is exempt from income taxes as the account value increases from year to year.  Withdrawals, however, are fully taxed in the year in which they are distributed and such distributions can be subject to added penalties if withdrawn before the owner has reached age 55.  Therefore, such accounts must be considered very differently than assets that can be divided or spent immediately without tax consequences.  There are also significant limitations on an individual’s ability to add to one’s retirement account so it is often very important to protect such accounts from being divided to the other party.  In any event, these tax consequences and tax limitations must always be carefully considered. 

Retaining the services of a knowledgeable and experienced attorney who has the ability to analyze all of the tax consequences of your particular case is very important.  The Tax Planning Attorneys at Edward F. Whipps & Associates have just such knowledge and over 30 years of experience helping their clients work through the maze of tax related issues.  You can arrange a confidential initial consultation at a mutually convenient time by calling the Columbus office at (614) 461-6006 or the Dublin office at (614) 461-6007.