Are Tax Problems Hiding in Your Divorce?
Sept. 4, 2020
Having a sense of financial security is important. Unfortunately, there are many things in life that can compromise one’s finances and stability. This can happen during a divorce, especially when couples overlook essential tax information. Careful attention to detail can help avoid these costly tax mistakes.
For example, many couples in Kentucky have at least one retirement account. A couple who has two accounts might consider just keeping one each, especially if they have equal balances. Say that one of these accounts is a traditional IRA while the other is a Roth IRA. Whichever spouse keeps the traditional IRA will actually receive less because the money in that account has not been taxed yet, and he or she will need to pay taxes when making withdrawals. Money in Roth IRAs is taxed before being deposited, so the spouse with this account will receive the full amount.
Parents may also need to consider deciding which spouse gets to claim their child as a dependent. Although a 2018 change to U.S. tax law temporarily eliminated the $4,000 dependency exemption, it is set to return in 2025. If a child will still be a minor, it is a good idea to agree on who gets the dependency exemption and whether they will alternate years.
Taxes usually do not top the list of most people’s concerns during divorce. This is not because people in Kentucky do not care about the tax implications of their divorces, but is more likely the result of already juggling dozens of decisions about things like property division and child custody. This is why some people choose to seek out guidance from an experienced attorney before making any final decisions during divorce.