Tax Issues that You Should Be Prepared for in a High Net Worth Divorce in Florida
Divorce can be very complicated for high net worth couples. The end of a marriage can raise a number of different challenging financial issues, including tax obligations. At Williams & Varsegi, LLC, we are committed to protecting the best interests of clients. Here, our Boca Raton divorce attorneys highlight key tax issues to be ready to address in a high net worth divorce in Florida.
Your Tax Filing Status May Change
In a high net worth divorce in Florida, one of the immediate implications is the potential change in your tax filing status—and of course, that can affect your financial planning. As you transition from filing jointly to filing singly or as head of household, your taxable income brackets and applicable deductions will change. It is crucial that you understand what to expect going forward.
Only One Spouse Can Claim the Children as Dependents (For Parents)
You cannot both claim your (minor) kids as dependents going forward. Following a divorce, only one parent can claim the children as dependents on their tax returns. It is an important consideration for tax benefits, including certain exemptions and the child tax credit. The parent with primary custody of the child generally has the primary right to claim children as dependents for tax purposes.
Understanding Post Divorce Financial Obligations and Taxes
If you or your spouse has financial obligations after a divorce in Florida, it is crucial that you understand the tax obligations. Here are two key points to be aware of:
- Child Support: As explained by the Internal Revenue Service (IRS), “child support payments are not subject to tax.” It is also not tax deductible for the payor.
- Spousal Support: Based on reforms to federal law passed in late 2017, spousal support is no longer taxable income. It is also not tax deductible for the payor.
The Sale of Assets May Trigger Capital Gains Tax Liability
When dividing assets in a high net worth divorce in Florida, selling assets such as property or stocks may trigger capital gains tax liabilities that can significantly impact the net value received from the sale. You should always carefully evaluate the cost basis and potential capital gains of each asset involved in the divorce to anticipate any tax consequences.
A QDRO Should Be Used to Split Tax-Advantaged Retirement Savings
There can be serious tax penalties associated with making an early withdrawal from an IRA or a 401(k). To divide these savings you should use a Qualified Domestic Relations Order (QDRO). A QDRO is a legal document that allows for the division of pension or retirement plan benefits between divorcing spouses without incurring penalties.
Contact Our Florida Divorce Attorney Today
At Williams & Varsegi, LLC, our Boca Raton divorce attorneys have the knowledge and experience to represent high income/asset spouses. If you have any questions about common divorce-related tax issues, we can help. Contact our family law team today to arrange a fully confidential case review. With a law office in Boca Raton, we handle divorce cases throughout Southeast Florida.
Source:
irs.gov/faqs/interest-dividends-other-types-of-income/alimony-child-support-court-awards-damages/alimony-child-support-court-awards-damages-1#:~:text=Child%20Support%20%2D%20No.,include%20child%20support%20payments%20received.
