When Nebraska couples are filing for divorce, they are often so focused on child custody and the division of assets that taxes fall by the wayside. In spite of this, taxes remain one of the most important and least understood aspects of the divorce process. Because of this, couples should plan ahead for various aspects of their finances that will be affected by the divorce.
According to Forbes, one important aspect is who gets to claim the child as a dependent. This privilege is usually provided to the custodial parent, but there are instances where the custodial parent may choose to allow the non-custodial parent to make the claim. To make this possible, the custodial parent must sign a Release of Claim to Exemption, more formally known as the Form 8332.
If the custodial parent fails to sign this form, then the IRS might not allow the non-custodial parent to make the deduction. This has brought many disgruntled parents to court, but Forbes notes that the tax court generally upholds the right of the custodial parent to decide. This may be the case even then the custodial parent originally agreed to sign or where the non-custodial parent has a written order from a probate court.
Forbes also identifies alimony as a tax issue. In the past, alimony was a deductible expense to the payer and was included in the gross income for the receiver. This changed with the 2018 tax reform laws. There is no longer a deduction for alimony payments and the ex-spouses who receive these payments no longer need to include it as taxable income.
There is also the issue of retirement and pension accounts. Typically, early withdrawals from these accounts may lead to taxes, fees or penalties. However, there are options in place to help couples divide up these accounts without triggering a taxable event.
Divorces are expensive. Failing to plan ahead for the taxes involved may be even more so. If there are children in the picture, then it also pays to have a good relationship with the ex-spouse for the benefit of the child, as well as the potential tax benefit of a voluntarily signed Form 8332.
