When planning, drafting and negotiating a divorce settlement with your lawyer during a no fault divorce in New York, there are a number of tax implications worth considering. These implications can often make a significant difference in the net value of certain property or income. Some of the implications during a no fault divorce in New York include:
Tax Filing Status
While the spouses are still legally married, they may think long and hard about which tax filing status to use. While most individuals may wish to file together to take advantage of various tax incentives, some people may prefer to file separately. This may be due to not wanting to be on the hook for a spouse’s tax debt or if there is a disparity between the spouses’ incomes that causes the lower earner to be paying taxes at a higher tax rate.
Children as Dependents
If the couple has children, they may consider which parent will claim the children as dependents. The parents may alternate years claiming the children as dependents or they may split the children. The parents may complete Form 8332 from the Internal Revenue Service.
Effect of Spousal Support
While child support is not tax-deductible and is not considered income to the recipient spouse, spousal support is considered a tax deduction for the paying party and is considered income to the recipient. Due to this distinction, it is important to negotiate how funds sent and received are categorized due to the potential tax implications.