Divorce can bring plenty of changes to a person’s life. One of the biggest concerns often involves future tax implications. Ohio’s equitable division laws can add an additional layer of complexity to these cases.
Let’s look at how to handle divorce and taxes in the Buckeye State.
Filing Status After Divorce
During or after your divorce, you will need to think about your filing status. Your marital status determines your filing status as of December 31. If your divorce is finalized by that date, you can enter “Single” or “Head of Household” on your taxes.
Keep in mind for the Head of Household status, you need to meet certain criteria. Most of the time, this will include paying more than half the cost of maintaining a home for a qualifying dependent. If you have custody of your child, you might be able to use that status on your claim. This status has a lower tax rate and a higher standard deduction compared to filing as Single.
For those still legally married on December 31, you have the option to file as “Married Filing Jointly” or “Married Filing Separately.” When you file jointly, you will have a more favorable tax rate and additional deductions and credits.
Division of Property
When preparing your tax returns, you need to account for how marital property was divided. Unlike community property states, where income and deductions might be split evenly, in Ohio, your tax obligations will depend on the specific distribution of assets and income. With that in mind, each spouse will report their respective share of income and deductions based on the equitable division.
But keep in mind that not all assets are taxed the same way. For example, if you receive the family home as part of the divorce settlement, you need to be aware of the potential capital gains tax implications if you decide to sell the property in the future.
Also, retirement accounts are often subject to special rules when dividing assets in a divorce. You might be able to use a Qualified Domestic Relations Order (QDRO) to pay immediate taxes and penalties when transferring retirement assets. Each situation is unique, and you will want to consult with a tax professional to learn more about reducing your liabilities.
Alimony and Child Support
Under the Tax Cuts and Jobs Act (TCJA), for divorces finalized after December 31, 2018, alimony payments are no longer tax-deductible for the payer. With that, the recipient no longer has to report the payments as taxable income. However, child support is still non-deductible for the payer and is not considered taxable income for the recipient.
Tax Credits and Deductions
Divorce can affect your eligibility for tax credits and deductions. For example, the custodial parent can claim child-related tax benefits, such as the Child Tax Credit and the Earned Income Tax Credit (EITC). On the other hand, the non-custodial parent may be able to take the Child Tax Credit if the custodial parent agrees to sign a waiver (IRS Form 8332). Not every person will qualify for these credits or deductions. You will want to reach out to a qualified attorney to learn more about what could apply to your situation.
Get Help for Your Divorce and Taxes Situation
With the complexity of divorce and taxes, you will want to get professional guidance from an experienced family law attorney in Ohio. They can help you with the specific tax rules that apply to your situation. Understanding how divorce will affect your taxes can help you avoid costly mistakes and ensure that you are adequately prepared for your financial future.
If you want to learn more about potential tax implications in a divorce, reach out to the experienced team at Axelrod Law Office in Lake County, OH. Call our office at (440) 271-8126 or submit a contact form to schedule a free, confidential legal consultation.