From selling property to filing as single rather than married and more, there may be tax implications for people who get a divorce. People should be familiar with both federal and Texas law to ensure that they understand how the value of their property could be affected by taxes as well as how their tax obligations might change as a result of the divorce.
Whether or not a person is married on the last day of the year determines whether the person is considered married or single for tax purposes. It might be a good idea to complete some transactions before the divorce is final. For example, the taxes associated with selling a home could be higher for single people than for those who are married. State laws vary regarding the rules around selling certain types of assets. People will need a qualified domestic relations order to split a 401(k) and some other types of retirement plans. They do not need one for an IRA, but they may want to investigate how they can avoid taxes and penalties.
The Tax Cuts and Jobs Act of 2018 eliminated the dependent exemption as well as the ability of people paying alimony to deduct that payment on their taxes. However, some states may allow alimony deductions. A financial adviser may be able to assist with many of these issues.
An attorney may also be able to help a client in planning for a divorce. Since Texas is a community property state, assets are supposed to divided equally unless there is a prenuptial agreement. However, this does not always mean they will be split 50/50. In a high-asset divorce, the process of property division may be particularly complicated since there could be valuable collections, complex investments and more. The couple might still be able to negotiate an agreement instead of going to court.