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The tax implications of divorce and property division

Divorce and the complications involved with dividing marital property are never easy to navigate for Illinois couples going through a divorce. However, what many couples do not think about until they get hit with it square in the face are the tax complications involved with property division. Indeed, it is vital to consider not just the value of one's assets but how taxes might apply to them before deciding on property division matters during a divorce.

Taxes filed after a divorce may be more difficult to navigate than tax filings during one's marriage. Indeed, many divorced individuals are surprised to discover that their divorce and asset division were not as equal as they originally thought after tax regulations have been applied. This is why it is vital to consider tax consequences before and during any kind of marital split, and definitely before finalizing one's divorce settlement.

One important tax issue applies to children and which spouse will be claiming them as dependents. In some cases, spouses will take turns claiming the children during alternate years. Any divorced parent who wishes to claim a child as a dependent must fill out IRS Form 8332. Also, parents with custody must sign off on that form, if it is to be used by a non-custodial parent. For each dependent child, parents are permitted to deduct $3,900 off their federal tax incomes; however, qualifying children must live with the parent over half the time and they must be under 19 years of age.

Other considerations must also be kept in mind, such as the date of one's divorce. If the divorce went into effect on Dec. 31, 2013, for example, then one is considered to be single by the IRS. Also, it is important to note that the recipient of alimony must pay income tax on that money and the payer is entitled to deduct it. Meanwhile, the recipient of child support does not pay taxes on the money received; rather, the payer is responsible for income tax on the child support that is paid. The complexities of tax law as it applies to divorcing couples and property division cannot be summarized in a single article, but detailed knowledge of this topic is crucial to any Illinois resident contemplating divorce.

Source: Chicago Tribune, "What's even worse than divorce? For some it's the taxes" Lauren Young, Reuters, Apr. 10, 2014

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