When it comes to divorce in California, one of the first problems to tackle is how you’re going to handle the division of property. It’s important to pay close attention to any tax issues that may arise.
Divorce, property settlements and taxes
Property division and asset evaluation in divorce inevitably mean big changes for your taxes. When you plan for this, you’ll save yourself a considerable amount of time, trouble and money. Disclosure from both parties is also essential to properly divide the assets.
In the event of a property transfer between spouses, you don’t have to worry about tax liability until the assets are actually sold. But selling a home is among the major game-changers in a divorce. Claiming a capital gains exclusion may be a possibility, provided you meet the residency requirements. You may have to do some research to see if you qualify.
When dividing up retirement plan benefits in a divorce, it doesn’t matter who owned the plan when it first started. The benefits that you receive are still taxed in the same way that they would if the plan had been your own.
Impact on financial support
For financial support there’s good news: It’s not nearly as complicated as the property division aspect. There is no tax on child support, and it can’t be deducted. You have the right to claim a child as your dependent, but be aware that it is controlled by the stringent policies of the IRS that offer little to no leeway.
Until the Tax Cuts and Jobs Act of 2017, alimony was tax-deductible for the paying spouse and taxable to the recipient. As of 2019, alimony became tax-neutral.