Understanding Income Tax During Divorce: What Michigan Residents Need To Know
For couples going through a divorce, understanding how income taxes will be calculated and filed can be one of the most challenging aspects of the separation process. The decisions made during this time can have significant financial implications for years to come.
At Gormley Law Offices, PLC, our attorneys work with you to handle complex tax matters during divorce. With offices in Howell and Fowlerville, we are ideally situated to assist individuals throughout Michigan in making informed decisions about their tax obligations during and after divorce.
What Determines Your Tax Filing Status During Divorce?
Your tax filing status is determined by your marital status on December 31st of the tax year. Even if you have been separated for months, if your divorce is not finalized by year-end, you will need to file either jointly or as married filing separately. This choice can significantly impact your tax liability and available deductions. A joint return might provide better tax benefits, but it also means both spouses are jointly liable for any tax obligations.
Property transfers between spouses during divorce are generally tax-free, but subsequent sales of these assets may trigger tax consequences. For instance, if you receive the family home in the divorce settlement and later sell it, you will need to understand how the capital gains exclusion applies to your situation. We review past tax returns, assess potential capital gains implications and structure any property settlements to minimize your tax burden.
How Are Support Payments And Dependents Handled?
The matter of claiming dependents must be carefully considered. The right to claim children as dependents can be negotiated in your divorce agreement – and this decision affects various tax benefits, including the Child Tax Credit and the Child and Dependent Care Credit. The parent who has primary physical custody is typically entitled to claim the children as dependents, but this can be modified through the divorce agreement if both parties consent.
Alimony taxation rules have changed significantly in recent years. For divorces finalized after 2018, alimony payments are no longer tax-deductible for the payer, nor are they considered taxable income for the recipient. However, child support payments remain tax-neutral – neither deductible by the payer nor taxable to the recipient.
Contact Us For Your Free Consultation
To learn more about how divorce affects your tax situation, schedule a free initial consultation by calling our offices at 517-219-9301. You can also contact us online. We can help you understand your options from the start, and that can lead to a less stressful experience overall.