Cash today can be difficult to find in the midst of a divorce
Things to know after a divorce
It’s difficult to manage cash today, and a divorce can make it twice as difficult. In particular, when tax time comes, it’s important to understand how to file as a single person again. Consumers are cautioned to watch out for a few important steps when it comes to tax planning.
• Hire a professional. Don’t try to wade through tax time alone after a life change like a divorce. Consulting with an attorney or tax advisor is crucial at this time, because they can make light of your specific financial situation. It’s best to get an estimate of joint and separate filings. Of course, this can only happen if there is or was an agreement in the divorce and some divorcees may be forced to file singly. If this is the case, a tax advisor can help you file the right way to save the most money.
• Remember the name change. Many wives take their husband’s last name or hyphenate their last name after a marriage. Once a divorce is finalized, remember that it takes up to three weeks for a name to legally change, according to the Social Security Administration. What is crucial is that your name on your tax return matches your name as registered with the Social Security Administration’s office. You’ll need a Form SS-5 to change your name if needed.
• Filing status. Your status determines standard deductions, so it is very important to understand. It also dictates whether you can claim certain deductions and credits. A tax professional will tell you that all of the above are decided by your marital status at the last day of the tax year, December 31st. For example, if you are divorced under a final decree on the last day of the year, then you are considered single for that tax year.
It’s critical to understand the above when filing and any good tax lawyer or professional can guide you through making the right decisions for your situation. You may be divorced, but that doesn’t mean you won’t still be responsible for previous joint returns, taxes, interest and penalties. Be sure to follow up with your spouse to get them all in order.
Things to watch for
In addition to watching for taxes, you also have to watch for cash today in other areas. Here are some important things to remember:
- Alimony is taxable to the year it was received
- If you adopted your spouse’s child, you’ll need a Social Security Number or Adoption Taxpayer Identification Number
- Child support is not taxable to the recipient or deductible by the payee
- A QDRO, or Qualified Domestic Relations Order, is crucial, because it sorts out the pensions of both parties and court orders equitable distributions
- Legal fees and court costs are not deductable, but the cost for tax advice related to a divorce may be
Understanding a divorce and taxes
A divorce can seriously change tax procedures and filings. Make sure if you are going through a divorce, you understand what rules best benefit you. A good tax advisor or attorney can help you make critical decisions on what to do about taxes, filings, and cash today.