If you’re like most people, you’d probably rather focus on anything other than taxes. But tax season is upon us. Now is the time for couples who are going through a separation or divorce to get solid financial advice to avoid errors that cost them dearly.
A divorce financial analyst may be the solution. There are more than 1,500 divorce financial analysts certified by the Institute of Divorce Financial Analysts nationwide, according to Investment News. That’s up 60 percent from 2011, an increase attributed to the rising number of divorces being filed as the economy recovers from recession.
Experts – including lawyers – acknowledge that there are so many legal issues to be addressed during divorce that it can be difficult to make sure that finances are in order. That can often come to light during tax time. For example, child support is tax-free to the recipient, but alimony is not.
Here are some tax tips that Certified Divorce Financial Analysts recently described in a press release:
- Pay attention to filing status. Those who file as head of household can claim a higher standard deduction and lower tax rate than a single filer. You need at least two children to make the strategy work, according to Heather Smith Linton of Durham, N.C.
- Always review your joint return. If your spouse prepares the return, look over everything before signing anything. This is a practice that should be done in any contract, but you will be responsible for any errors the IRS catches regardless of who prepared your tax return.
Other things to consider are the tax implications of keeping other assets, such as the family home. Becoming solely responsible for the property taxes and maintenance on a home may be too expensive given your new financial circumstances after a divorce.
Consider also the tax consequences when it comes to retirement accounts such as IRAs and 401(k)s. You can’t take a direct payout without substantial taxes levied on the money, but there are ways to avoid such penalties.
The bottom line is to always discuss your financial situation with your divorce and separation attorney, but also consider whether you would benefit from talking to a divorce financial analyst or an accountant. With proper planning, recovering from an undoubtedly painful split can be made much easier by knowing that your finances are protected.