In New Jersey, you will get what the court considers fair depending on your marriage’s unique circumstances. However, what a judge may think is just, and satisfactory may not be reasonable for you if you factor in the tax implications it might have. So, let’s look at the main tax concerns when divorcing.
Don’t report alimony as income
According to the Tax Cuts and Jobs Act that was passed in December 2017, alimony payments are no longer deductible to the payer or considered income to the recipient. Prior to this act, divorcees who paid alimony could deduct these payments on their taxes, while the spouse who received them had to claim them as taxable income. Now, however, these rules have changed since December 31st, 2018. This means that if you’re currently paying or receiving alimony, nothing will change for you tax-wise; it is only those getting divorced after this date that has no tax implications.
Be mindful of marital property settlements when filing your taxes
When it comes to property division in a divorce, it’s important to keep in mind the tax implications that come along with certain types of assets. For example, if you’re awarded a house in your divorce settlement, you may have to pay capital gains tax on any profit you make when you sell it. Similarly, if you’re awarded a retirement account in your divorce, you may have to pay taxes on the withdrawals that you make from it.
Don’t report child support as income or expect any deductions
Child support payments are not deductible to the payer or considered income to the recipient. Therefore, if you receive child support, don’t report them as income when filing your taxes, and if you are paying, don’t expect any deductions.
Divorce is never easy, but it can be especially complicated when you factor in the tax implications of your settlement. Thus, it’s crucial for you to understand how taxes work to ensure that you get what’s fair.