New York couples amid a divorce usually don’t put tax considerations at the forefront of their negotiations. Nevertheless, not planning for a change in your tax status after your split can have disastrous consequences. Paying attention to tax issues early in your negotiations can help avoid costly mismanagement.
Tax points to consider during negotiations
Splitting property during divorce negotiations often overshadows everything else, especially if you have considerable assets and want to keep specific ones. From the outset, keep these eight points in mind:
- Choose an appropriate tax filing status in the year your divorce becomes final
- Determine the best time to file your divorce
- Sort who receives tax credits
- Understand recent changes to alimony payments
- Determine the best way to transfer property
- Recognize the value of tax carryovers
- Transfer retirement assets properly
- Find the best spousal support solution
In the year that your divorce becomes final, you have a choice between filing a joint tax return or married filing separately. Determine which will be more advantageous for you, along with whether you should wait until the new year to file your papers. Only one spouse can receive tax credits like dependents, so negotiate a fair deal. Alimony status has changed under the tax code, so determine whether spousal support like trust payments is better. Determining tax carryovers resulting from losses and whether the receiving spouse would from rolling over retirement assets.
Protecting your financial well-being
Many different factors go into the distribution of property during a divorce. New York is a marital property state, so your collective assets won’t have a 50/50 distribution. This factor makes determining which assets to keep when you finalize your divorce even more critical.
If you sell a primary residence during divorce negotiations, foregoing the one-time tax break that sellers get may reduce your taxes during the sale year and the overall financial hit. Working with financial and tax advisors during divorce negotiations, in addition to your legal team, can help you protect your overall financial position during negotiations and once you finalize the divorce.