New 2013 tax rules may complicate your divorce

On behalf of Stange Law Firm, PC posted in Family Law on Thursday, February 7, 2013.

It has been reported for many years that the month of January sees more divorce filings than any other month. Exactly why that is remains a relative mystery however; the fact is that it is also a period when many people begin contemplating their annual tax returns. The timing of a divorce can always affect a person’s tax return but with the passage of the federal American Taxpayer Relief Act, things may have just gotten even more complicated for those seeking a high-asset divorce.

With the new laws, divorce attorneys who work with financial advisors and tax accountants may want to consider divorce agreements more carefully, including such aspects as alimony and how investments and stock portfolios should be divided. Other considerations may include retirement accounts, pensions and executive pay incentives. The timing of a divorce can make a real difference in tax considerations, including whether the couple can file jointly or separately for the year in which they divorce.

A financial advisor or tax attorney can help a client determine when the best time to file for divorce from a tax perspective is. The president of the American Academy of Matrimonial Lawyers was recently asked whether a fund manager should consider giving away part of his multi-million dollar deferred compensation in his pending divorce settlement. An advisor will review the timing of when the money is to be paid and when options may become vested to determine how much in taxes the client would be required to pay on the money and when.

Alimony is another consideration in a divorce as it is considered a tax deduction by those who pay it and reportable income by those who receive it. Child support on the other hand is not deductible nor is it considered reportable income and thus both options should be considered when hammering out a divorce settlement in the best interest of a client. All this should be considered from a tax perspective in light of the new tax rates and income thresholds.

Then there is also the capital gains Medicaid surtax on investment income and dividends over $200,000 to consider when determining how to split up an investment portfolio. Perhaps a rental property or vacation home is more advisable from a tax perspective. There is now much more to consider under the American Taxpayers Relief Act when determining a complex property division in a high net-worth divorce settlement.

Source: The Wall Street Journal, “New Tax Rules Complicate Divorce,” Arden Dale, Jan. 31, 2013

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