Divorce, Taxes and Bankruptcy
We Explain Divorce and Bankruptcy
Divorce can be a difficult process, especially a contested divorce in which both parties cannot agree on major issues such as spousal support, division of marital assets, and child custody payments, if children are involved. But divorce can also affect the taxes you pay, and may even lead to bankruptcy depending on how assets and debts are allocated. That is why you may need the services of an experienced family law attorney to help you navigate through the future challenges you may face with respect to taxes and bankruptcy.
How Divorce May Affect Your Tax Liability
During a divorce, there are some major issues that can affect your tax liability, including:
- Division of Assets – If stocks were divided as part of the Marital Settlement Agreement, and one party wants to exercise their option on the stock, that party would be subject to capital gains taxes. This would also apply in the case of real estate, such as a marital home, or a vacation home, if the home’s valued exceeded the standard exclusion provided by the Internal Revenue Service (IRS).
- Child Custody – The IRS allows the custodial parent, defined as the parent who has the majority of physical and legal custody of a child, to claim that child as a deduction after a divorce. In some instances, parents may decide to share the dependency exemption, meaning that they alternate the exemption year after year, or one parent claims one child and the other parent claims a second child in cases in which multiple children are involved.
- Alimony – Any person that receives spousal support payments after a divorce must report those payments as taxable income. Furthermore, the person who pays spousal support can deduct these expenses, unless the Marital Settlement Agreement specifically prohibits this deduction. In Florida, if your divorce is finalized by January 1, 2019 and you have to pay alimony, it will not be tax-deductible. If you receive alimony, you will not have to pay taxes on it.
- Child Support – Any parent receiving child support payments is not taxed for that money, but the parent paying child support cannot claim this payment as a deduction. Depending on which side of the aisle you’re on, you will have to factor this in to your yearly tax preparation.
Another important tax consideration to remember is that once a divorce is final, the divorced couple must file their returns as single taxpayers. However, a custodial parent may file as Head of Household, which means that they live apart from their spouse more than six months during the year, and pay more than half the costs of maintaining the household.
The Relationship Between Divorce and Bankruptcy
While divorce and bankruptcy may not seem to have a natural link, the truth is, divorce is one of the top causes of bankruptcy, and money problems are one of the top causes of divorce. As a result, some parties in a divorce may find that they must file bankruptcy directly after a divorce is finalized in order to regain control of their financial future.
One thing to keep in mind if you find yourself going through this process is that state law regarding what is exempt in the division of marital assets is often different from assets that are exempt in a bankruptcy case. Therefore, property that you managed to keep in a divorce may be seized in a bankruptcy filing.
What Our Clients Have to Say
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"You can too trust him!"I am using Eric for the second time, he saved this child the first time when she needed it the most. I know God’s will placed him in my life and when an incident came up again I didn’t hesitate to call Eric Cheshire. He is a Godly Man that gets at the truth to help in the best way he can with the will of God. I trust him with the most precious gift God gave me, you can too trust him.- Former Client
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"A true gentleman and professional!"As a woman of God, I would never have dreamt I needed Eric and his firm’s services. Fortunately, it was one of my better decisions. For his professionalism and kind heart made me feel that I was not in this alone. He was walking with me during the entire ordeal and I am very blessed to have a Christian man such as himself to guide me and explain everything to me. A true gentleman and professional! Thanks Eric!- Former Client
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"He genuinely cares!"Mr. Cheshire is one of the good guys. He genuinely cares about his clients and what is important to them.- Former Client
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"I am so thankful to have found someone who was so knowledgeable and considerate."As you might imagine this was a difficult time in my life. I am so thankful to have found someone who was so knowledgeable and considerate to help me through my divorce.- Former Client
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"Will hire him again if I ever need an attorney for my legal needs"I’ve used Eric Cheshire, PA over the years for my divorce and he handled it in an understanding but prompt manner. I’ve recommended him to other family and friends and they’ve been elated with his representation also. Will hire him again if I ever need an attorney for my legal needs.- Former Client
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"Great Service!"Great Service! He was kind, understanding and easy to work with.- Former Client
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"Eric fought for our family to be together."Very nice and helpful. Give my husband his legal rights as a father to be able to see his son. Eric fought for our family to be together and he always checked in with us to see how things were going. I couldn’t have asked for a better lawyer and family man. He loves his family and he loves his clients too.- Former Client
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"Very grateful!"Atty Cheshire reviewed the case carefully with my daughter and communicated with other lawyers in Missouri where she lives. We spoke with him to give other pertinent info and he kept us posted. He spent we suppose several hours on her case which helped prevent some financial pitfalls on her part. My daughter and us parents are very grateful for his foresight and timely advice. We highly recommend Atty Cheshire. (Reviewed from a potential client who consulted with Attorney Cheshire).- Former Client
An Advocate to Help Through Challenging Times
With all the complexities and difficulties of divorce and how it can impact your tax situation and even a possible bankruptcy filing, it is vital that you hire an experienced family attorney such as The Law Office of Eric C. Cheshire P.A. to help protect your rights. Please contact us at (561) 677-8090 for a confidential consultation.