Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
Back in the distant mists of time, I got a divorce. It was easy. We had no children and no disputes over splitting assets. We sold the house and split the profits, and we even shared an attorney (his best man at the wedding).
However, when you have a lot invested in a marriage—time, children, family connections, assets, businesses, and a lot of anger—a divorce can get very messy. It’s even worse when only one of you is working with a tax professional that understands how to split up assets. That person can make it seem like you’re getting a fair split until you try to sell or cash in the assets. Suddenly, you may find that you’ve been left holding the bag on all the taxes while your ex has all the tax-free assets.
Here are some tax tips to keep in mind during a divorce:
1. Children. Define who gets the dependency exemption for the children. Use Form 8332, which supersedes divorce agreements in the eyes of the IRS, to assign the dependent to the correct parent for each of the next several years. Without this form, you face the tiebreaker rules, which are not really equitable at all.
2. Support. The support that is being provided must be clearly defined. Child support and family support are not taxable to the person receiving the funds nor are they deductible to the person making the payments. When the money is meant to help care for the children and cover their schooling and such, you definitely do not want it to be regarded as alimony because the parent receiving alimony pays tax on that money.
3. Alimony. Alimony is for the support of the former spouse. It must be paid for at least three years, and it cannot continue after death. If it is designed to stop when the children are 18, the IRS might regard it as child support rather than alimony. Most importantly, this is not a big lump sum payment from the sale of joint assets. That’s a split of marital property, and it generates no tax effects.
4. Assets. Some assets, like cash, CDs, and savings accounts, have no impact whatsoever on taxes or raise just minor issues. In many cases, whoever gets these types of assets gets 100 percent of their value.
Other assets, like retirement accounts, regular IRAs, and annuities, are often untaxed from the very beginning. Whoever gets those assets will pay all the tax on the money he or she draws out.
When it comes to splitting assets, problems arise when there are investments like securities or rental properties that have been held for many years. These will have a very low basis (tax cost) but will have appreciated substantially over 10, 20, or 40 years. The person getting those assets will be stuck with all the taxes on the depreciation and capital gains.
You can, however, avoid paying taxes on at least $250,000 worth of profit when you sell your home, provided you have lived in it for at least two years out of the last five before you sell it. When both divorced spouses stay on title until the home is sold, the IRS even offers a way to get the benefit of the full $500,000 personal residence exclusion.
We could go on for many more hours, pointing out other key issues in-depth. The best advice for a couple going through a divorce is to work with a tax professional who can evaluate your financial and tax options with a clear mind so that you will both get a fair deal.
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.