Taking taxes into account in a divorce

When Pennsylvania couples divorce, it has an impact on their taxes. Once the divorce is finalized, their filing status will change from married to single. This is usually based on their marital status on the last day of the year. However, there may be a number of more complex issues.

For example, if there is a retirement account to divide, they might need a document called a qualified domestic relations order. If the account is an IRA, a QDRO is not necessary, but they may want to find out whether there are steps they can take to avoid a 10% early withdrawal penalty. People who need to sell a home might want to take the timing into account. In some cases, it could be beneficial to sell it before the divorce is final since the tax situation might benefit married people more than single people. It is important to understand state law since there may be specific rules around dividing other assets, such as stock.

While in the past people who paid alimony could deduct that from their taxes, the Tax Cuts and Jobs Act has eliminated this. The dependent exemption has also been removed, meaning that divorced parents do not have to negotiate about who will get it.

Some couples are able to reach a divorce settlement through mediation while others must go to litigation. Mediation can have some advantages. Its focus on reaching a resolution that suits both parties differs significantly from the adversarial approach of litigation, but it does require the cooperation of both individuals. Some people may face situations in which a spouse is not cooperative or is even trying to hide assets. A parent who is concerned about the child’s safety with the other parent may also opt for litigation. An attorney can be of assistance in these scenarios.

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