The emotional wounds of divorce can understandably be difficult to cope with, but the financial wounds can also be devastating. Unfortunately, these financial wounds sometimes develop simply because a person is not informed about how certain divorce settlements will affect them long-term. A couple of tips may help people going through the divorce process in California to avoid experiencing related money problems in the future, particularly when it comes to paying taxes.
One important consideration often overlooked during divorce is the tax consequences of a settlement. If one person agrees to get alimony each month, this income is taxable; this means that the recipient has to make quarterly estimated state and federal tax payments on this income. In addition, the paying ex can deduct this amount when filing his or her taxes.
It is also worth noting that property division completed during a divorce proceeding is typically not taxable. Furthermore, payments made for child support do not have tax consequences. However, only one of the parents can claim the kids on their tax returns.
The choices a person makes during a divorce proceeding may end up either helping or hurting him or her for years after the divorce has been finalized. This is why proper legal guidance is so valuable during the dissolution of a marriage. Both of the individuals who are getting a divorce in California have the right to pursue their own best interests financially while still striving for a result that is beneficial to the other party as well.
Source: The Huffington Post, “Divorce and Money“, Terry Savage, March 18, 2015