What You Need to Know About Understanding Taxes in a Georgia Divorce
The divorce process comes with a wide range of financial obligations, including important tax considerations. Here’s everything you need to know about understanding taxes in a Georgia divorce.
Many important factors arise during the divorce process that may impact a couple’s tax filing. Periodic alimony, child support, and property division are all areas that directly correlate with tax changes in a Georgia divorce.
Filing Taxes After Divorce
Internal Revenue Service (IRS) Publication 504 is an invaluable resource for those going through a divorce or separation and can help divorcing couples understand changes that may now apply to their situation. The following are four basic topics that will likely impact tax filing after divorce:
1. Filing status: The IRS considers someone unmarried for the entire tax year regardless of when divorce was finalized, provided that it occurred on or before December 31.
2. Deductions: The IRS considers someone’s unmarried status for the entire year. However, an ex-spouse may be able to claim a higher standard deduction depending on how much of that year they spent living with and supporting their spouse and/or children. They may claim Head of the Household status if they paid more than half the cost for the upkeep of the home and had a qualifying person, such as one of their children, living with them for six months or longer.
3. Alimony and child support payments: Under IRS guidelines, alimony is typically tax-deductible by the spouse making payments, but child support is not. Dependency deductions and other tax credits associated with children can be of considerable value.
4. Capital gains taxes or losses for property: If a partner sells their marital home as the result of a divorce, they could end up having to pay capital gains tax if, as a married couple, they netted a sale price of $500,000, or over $250,000 as an individual.
Filing Taxes Before Finalizing a Divorce
Filing taxes before a divorce is final is often confusing to couples, as they generally have the option of filing joint or separate returns. As listed in Publication 504, there are several important factors to consider:
- If a partner has a separation agreement in place on or before December 31 of the tax year, they are considered unmarried.
- If a partner is considered married for tax purposes, filing a joint return can often result in lower tax liability, but this depends on the specific situation. Having estimated taxes prepared will help determine which status provides the best individual or family benefit.
- Filing separately could protect a partner against any tax debts their spouse may owe and may result in a smaller liability or larger refund for the individual.
- If a partner has children and they file separately, only one of the spouses can claim their children and any related tax credits on their return. Should both parties do so, it may trigger an unwanted audit.
Areas With Tax Considerations in a Georgia Divorce
Couples seeking a divorce should understand how their taxes will change before proceeding with a divorce case. In Georgia, divorce can affect several areas of a person’s taxes.
Periodic Alimony and Child Support in a Georgia Divorce
As a general rule, periodic monthly alimony payments paid from a cash account (via check / electronic transfer) while the parties are living separately are considered income to the recipient spouse and a tax deduction to the paying spouse.
Further, third-party payments for the benefit of a spouse, such as the mortgage payments on the marital home, utilities, upkeep expenses, property taxes, medical expenses, or insurance premiums, can be argued as taxable alimony as well. The parties must carefully consider the tax treatment of any such payments in any separation agreement.
Child support payments, whether temporary or permanent, are not deductible to the payor or charged as income to the recipient.
Related: Georgia Equitable Distribution FAQs
Property Division in a Georgia Divorce
Georgia is an equitable division state, which means a judge decides how to divide any marital property between the two parties. The property division is not always split evenly and depends on several factors, such as each spouse’s financial situation.
Dividing marital property involves a transfer of the property to one spouse’s name. Georgia law considers property transfers tax neutral, which means neither taxable gains nor losses are recognized on the transfer of property. Spouses only risk taxation on the property transfer if the transfer is not timely (i.e. does not take place within five to six years from the finalization of the divorce).
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