Divorce is challenging enough, trying to decide how to divide assets and establish a fair amount of support. The last thing you might want to think about is taxes. But it is equally important to understand the tax implications of your decisions (or indecisions), as they can save you from future headaches and financial strain. Here are some essential tax tips to consider:
 
During your divorce you should consider these practical tips:
Handle Property Transfers Correctly
Transfers of property between spouses as part of the divorce are usually non-taxable events. These types of transfers are generally specified in the Marital Settlement Agreement. However, you must work with your plan provider or real estate attorney to ensure the transfers are handled correctly.
 
Choose the Right Filing Status
Your marital status as of December 31st determines your filing status for the entire year. But, even if you’re entitled to file joint, you should still consider whether filing jointly or separately makes better financial sense. If you’re living separate and apart, you may also want to consider whether you file as head of household (instead of married filed separately).
 
Don't Forget About Retirement Accounts
Dividing retirement accounts can have tax or other financial consequences, if not properly transferred. For example, you may incur penalties if you liquidate a retirement account, instead of having it transferred directly to your spouse by way of a Qualified Domestic Relations Orders (QDROs). Most important is to ensure the language in your Settlement Agreement regarding how these types of assets are to be transferred is specifically articulated, which should include language that confirms the asset is being transferred through a “tax-free rollover”, for example.
 
After your divorce, these essential tax tips are a must:
Update Your Withholding
Change in your marital status usually means a change in the tax withholdings outlined on your paycheck. To ensure you have made the correct election, file a new Form W-4 with your employer to reflect your current situation.
 
Real Property Transfers
Usually the marital home (or other real property) is transferred post-divorce. When transferring real property in New Jersey, you must be aware that there is a ninety (90) day timeframe to complete the conveyance, if you want to be exempt from the realty transfer tax. Meaning, the Deed must be recorded within 90 days of the divorce being final.
 
Understand Alimony Tax Treatment
Alimony and spousal support established after 2018 are not tax-deductible for the payer and are thus not taxable to the recipient.
  
Claiming Dependents
The custodial parent generally has the right to claim the child as a dependent. However, we routinely see parents alternating the dependents or if there are more than one, splitting them. In that event, the parties must agree and must file the appropriate form.

Please note that these tips are just that, tips and general information. This is not tax advice.  What you should do in your situation, depends on the specific facts of your case. Also, keep in mind, most divorce lawyers (HLG included) are not tax lawyers, so if you are unsure what to do, we encourage you to seek professional advice from a tax expert. Tax laws are complex, and getting professional advice can be invaluable during this transitional period.
 
This blog post published in April 2024 provides a starting point for individuals think about taxes during divorce. Tax laws change overtime, so staying updated is crucial.

Whether you are contemplating filing for divorce or you have just been served with divorce papers, you should do some preparation before you hire an attorney or file anything with the court. The items listed below may not be all of the documents you need during the divorce process. Additionally, many of the following items may not be applicable to you, but it is important to compile and organize as much as you can. The clearer the picture, the more effective you and/or your attorney will be.

Often, one spouse in the marriage assumes the role of record keeper/accountant. If you do not have access to any of these documents, they may become available through your spouse’s filings or during the divorce process through discovery requests.

Generally, you should gather:

1. Written agreements between the parties including pre-nuptial, post-nuptial, and separation agreements
2. Prior court orders between the parties.

Additionally, you should prepare documents for each major area of divorce litigation. There are four major areas addressed in a typical divorce: (1) Equitable Distribution; (2) Spousal Support; (3) Child Support; and (4) Child Custody.

Equitable Distribution
Equitable distribution is how property is distributed between the parties. Virtually all of the property accumulated during the marriage is subject to equitable distribution, with some exceptions. Therefore, you will need to account for the assets and debts accumulated during the marriage. Assets include real property, retirement accounts, and valuable personal property. Debts include credit card debt, mortgages, student debt, etc.
If you or your spouse own a business, you should compile tax documents from the business.

Again, if you do not have access to any of these documents, don’t worry! They may become available through your spouse’s filings or during the divorce process through discovery requests.
 
Spousal Support/Alimony
The court’s main goal in establishing spousal support is equity and fairness. Alimony is not appropriate in every marriage. In New Jersey, the court will weigh a number of factors in establishing whether alimony is appropriate and, if so, what amount is proper. Some of the factors include the length of the marriage, the income of the parties, each party’s age and ability to work, etc. In establishing an alimony award, it is essential that the court receive a full picture of the parties’ incomes. That means that tax documents including W-2’s, 1099’s, and documentation showing supplemental income from rental properties or dividend payments are important.
 
Child Support
Child support in New Jersey is calculated through a formula established by state statute. In order to calculate an appropriate amount of child support, you will need to present information including:

1. Names and birthdates of the children;
2. Documentation establishing the parties’ incomes (tax returns, W-2, 1099, paychecks, public assistance);
3. Annual overnights with each parent (established in parenting time schedule, explained below);
4. Other information, including child care costs and insurance premiums, etc.

 
Child Custody
There are two forms of custody: Legal Custody and Physical Custody. Legal custody allows parents to participate in major decisions for the child including school, religion, medical decisions, etc.

​Physical custody is where the child physically resides. In many cases, the child resides with one parent for a majority of the time and the other parent is usually afforded parenting time. It is helpful to keep track of the parenting time exercised during separation or during the divorce process in order to establish a parenting time schedule.

When parents cannot agree on parenting time or if there is some reason that custody or parenting time should be limited, you must prepare evidence to prove the limitation is in the best interest of the child. This evidence can include police reports, treatment records, photos, videos, written correspondence between the parties, etc.
 
Again, if you cannot find or do not have access to any of this information, it may become available during the discovery process during your divorce.

It is important to remember that even the simplest marriage can end in a complicated divorce. Divorce is a give-and-take process that can be difficult and emotional. However, with the right preparation, you can save your self a lot of frustration.

Once you have compiled all of your documentation, it will likely be beneficial to speak to an attorney. If you are contemplating a divorce or have just been served with divorce papers, visit hunnelllaw.com/contact to schedule a strategy session with an attorney at The Hunnell Law Group.

By Caitlin Holland, Esq.