By Jim DeMay
Something that may not be at the front of your mind during your divorce is taxes. However, there are significant tax consequences with respect to payments received by parties during a divorce whether through property division, alimony, or child support. Here are some basics with respect to tax issues during a divorce:
Child Support: Child support is not taxable income to the payee spouse. For the same reason, child support is not tax deductible by the payor spouse.
Alimony: Alimony is taxable income to the dependent spouse. For the same reason, alimony is tax deductible by the supporting spouse.
Property Division: The division of property “incident to divorce” is generally not a taxable event. See Internal Revenue Code Section 1041. A transfer of property is “incident to the divorce” if the transfer (1) occurs within one year after the date on which the marriage ceases, or (2) is related to the cessation of the marriage. However, note that the tax basis for each item of property remains. For example, if a spouse receives $100,000 worth of stock, that stock carries with it the tax basis from when it was purchased during the marriage. For this reason, $100,000 worth of stock in a divorce will almost always be worth something less than $100,000 in cash or in another asset not subject to a capital gains tax, such as a primary residence.
An experienced divorce attorney can further advise you on the tax implications of your divorce. Call 704-788-3211 to learn more from a Concord divorce lawyer.