In Missouri, several tax considerations arise during a divorce. Here are some key points to keep in mind:
- Filing Status
- Marital Status at Year-End: Your marital status on December 31st determines your filing status for the entire year. If you are divorced by the end of the year, you cannot file a joint return.
- Filing Options: You may need to file as “Single” or “Head of Household” if you meet certain criteria (e.g., having a dependent and paying more than half the cost of maintaining a home).
- Alimony and Child Support
- Alimony (Spousal Support): For divorces finalized after December 31, 2018, alimony payments are not deductible by the payer nor taxable to the recipient, per the Tax Cuts and Jobs Act (TCJA). For divorces finalized before this date, different rules may apply.
- Child Support: Child support payments are neither deductible by the payer nor considered taxable income for the recipient.
- Property Division
- Tax-Free Transfer: Transfers of property between spouses as part of a divorce settlement are generally tax-free. This means no immediate capital gains taxes apply, but the recipient spouse takes on the original cost basis of the property.
- Retirement Accounts: Transfers of retirement account funds incident to a divorce (under a Qualified Domestic Relations Order, or QDRO) are not taxable at the time of transfer, but taxes will apply upon withdrawal.
- Dependents and Child Tax Credit
- Claiming Dependents: Only one parent can claim a child as a dependent for tax purposes. Typically, this is the custodial parent, unless there is an agreement stating otherwise.
- Child Tax Credit: The parent who claims the child as a dependent can also claim the Child Tax Credit, if eligible.
- Asset Valuation and Division
- Fair Market Value: When dividing assets, consider their fair market value and any associated tax implications. For example, selling a home may result in capital gains tax if the gain exceeds the exclusion limits.
- Capital Gains: Be aware of potential capital gains taxes on appreciated assets. The recipient spouse will assume the original cost basis of the asset.
- Legal Fees
- Deductibility: Legal fees related to the divorce itself are not deductible. However, fees for tax advice or for obtaining alimony can be deductible in certain circumstances.
- Debts and Liabilities
- Responsibility for Debts: Be clear about who is responsible for any joint debts. This can impact your financial situation and credit rating.
- Health Insurance
- Coverage Changes: Post-divorce, you may need to address changes in health insurance coverage. If you are covered under your spouse’s plan, you may need to find new coverage.
- Estate Planning
- Update Documents: Review and update your estate planning documents (e.g., will, trust, power of attorney) to reflect your new situation.
- State-Specific Considerations
- Missouri Laws: Be aware of any specific Missouri state tax laws that may impact your situation. Consulting with a tax professional or attorney knowledgeable in Missouri law is advisable.
It’s important to consult with a tax professional or attorney who specializes in family law to navigate the complexities and ensure compliance with both federal and Missouri state tax laws.
At Raza Family Law Solutions, we practice family law effectively guiding clients through prenuptial and post nuptial agreements, dissolution of marriage, modifications of prior judgments, and resolving child custody disputes. We also help families take a different approach to divorce with mediation and collaborative work. Contact us for a consultation at (314) 408-5957.
