When undergoing amicable divorce in Colorado, estate planning or drafting a prenuptial agreement, it is important to understand how your taxes will be affected. Although you should always consult a public accountant in all tax matters, the attorneys at Willoughby & Associates will try to point out potential tax problems or advantages you may encounter along the way. Here are some things to bear in mind involving taxes:
“• It will sometimes be advantageous for a client and his or her spouse to file joint
income tax returns for the year that they are divorcing. However, tax returns are
to be filed based upon the parties’ marital status as of December 31. If parties
are reaching a settlement near the end of a year, the option of requesting that the
decree be entered after January 1 of the next year should be [considered].
This request might not be granted by the court, however.
- If parties will not be filing an income tax return together during the divorce
process, the separation agreement or court orders should address which party is
to claim which deductions, such as the mortgage interest deduction and property
tax deductions, for the tax year. Parties should also discuss which party will be
claiming the interest or dividend income on jointly held assets, such as jointly
held brokerage accounts. If a solely titled asset has been liquidated and there are
income tax consequences, such as with the liquidation of a retirement asset, par-
ties should address which party will be declaring the resulting income and how
that liability will be equalized, if at all. Parties should reach agreements on di-
viding carry over loss from prior years.
- Head of household filing status is quite advantageous for most taxpayers. If par-
ties are dividing parenting time equally, there should be a discussion about which
parent can file as head of household during a given year, when applicable.
- Child support is not taxed to the obligee, and is not tax deductible to the obligor.
- Parents of minor dependent children may agree upon who claims the children as
exemptions on their income tax returns annually. Parties should make that agree-
ment as part of a separation agreement, or request that the court resolve the issue
at permanent orders. If both parties claim the same children as exemptions on
their income tax returns, their risk for audit increases.
- Only the parent who claims the child as a dependent on the income tax return
may receive the child tax credit” (Willoughby, 2015, p. 27-28).
Read more about the tax areas that you should be aware of in “Chapter 38” of Lawyers’ Professional Liability in Colorado.
Willoughby, K. R. Esq., (2014). Family law. Lawyers’ Professional Liability in Colorado, 27-29.
Categories: Exceptional Representation