With the coming of the New Year, tax season is officially in full swing across the nation. If you are currently separated or going through a divorce, that can have an impact on yours taxes. Separating spouses have many tax filing considerations to consider ranging from deciding their proper filing status (married, filing separately, married, filing jointly, single, etc.) to figuring out who gets to claim the children as dependents on their taxes. It is important that parties specify how taxes decisions will be handled in a legally-binding Consent Order or Separation Agreement in order to prevent any later issues.
One important consideration regarding taxes is how parties plan to pay for any tax liability or split a tax refund for the year in which they separated. It’s advisable that as part of this process, parties also determine whether they plan to file separate or joint returns for that year. Notably, some parties may leave that decision for a later date. For example, a Separation Agreement or Consent Order might specific that parties shall confer at tax-filing time to decide which filing status is most beneficial and then proceed with that filing status. Either way, how the refund will be split, or the taxes will be paid for, should be decided ahead of time to avoid any future dispute on the topic.
Another important consideration for splitting parents is the decision as to which parent has the right to claim the children as dependents. Whereas the Internal Revenue Code lays out default rules as to which parent has the right to claim the children (generally the parent with primary custody), parties are free to agree otherwise. Some parents may choose to provide the ability to claim the children to a particular parent every year, while others choose to alternate who has the right to the claim the children year to year.
North Carolina Family Law cases inevitably involve important tax decisions including the considerations reviewed above, as well as other tax implications such as the effect of Alimony on parties’ incomes (tax deductible versus taxable income) and the situations in which retirements funds like 401(k)’s and IRA’s may be transferred tax free. Given the intersect between North Carolina Family Law and these important tax concerns, it is important for parties’ to address these issues with their North Carolina Family Law Attorney as well as to seek the advice of licensed tax professionals. To speak with someone today about your North Carolina Family Law case, please call our office at (704) 810-1400 to schedule a confidential consultation.