Jan 27, 2015

Taxes can have a costly effect on income taxes and capital gains if they are not addressed correctly in your final divorce settlement. Investment funds, mutual funds, your home and any other assets you shared need assessed for capital gains. You do not want to have capital gain greater than your ex-spouse. 

Your Divorce Settlement and Capital Gains Taxes

An example of a capital gain would be if your house was worth $140,000 but you purchased it for $100,000. The capital gain would be $40,000.  Have the property analyzed for the amount of capital gain to protect you from having a tax liability at tax time.

You will have to pay long-term capital gains tax and possibly short-term gains also. You will be charged at your tax rate which could even be as high as 35%.

If your home has a gain of over $250,000 you should think about selling it before the divorce to be able to get the full $500,000 exemption. If you have lived in your home for at least two out of the last five years then you are allowed $250,000 capital gain exclusion per spouse.

Alimony, Support and Your Divorce Settlement

Filing status and alimony payments are affected by your divorce settlement. If you receive $60,000 in alimony it is considered ordinary income that is taxed at a marginal 30% tax bracket for state and federal. This makes the $60,000 actually only worth $42,000.

If you are both in the same tax bracket, the payer actually receives a tax deduction with alimony/spousal support. So in theory, they would only be paying $42,000 versus $60,000.

How Should You File

If you were still married on 12/31 of the tax year you can save a considerable amount for both spouses if you file jointly. Filing Head of Household versus single can save you on taxes if you qualify and if you were divorced after 12/31 of that tax year.