Most people expect that their divorce will impact their finances, in both negative and positive ways. However, they may not realize that they have the power to prevent some of the potential losses by making smart choices around their taxes. Fortunately, experts have advice for those here in Virginia who want to reduce their tax burden in a divorce.
First, some people make the mistake of considering only the cash value of an asset when they are determining who gets what in a divorce. The problem is that certain assets may have an equal cash value, but get taxed differently. For example, each spouse could have the same cash value in stock, but each’s portion gets taxed differently because they were bought at different prices and times.
Another matter has to do with tax credits for children. Though recent changes in tax law eliminated a dependency exemption for custodial parents, that law is set to expire in the future. So, while a custodial parent may not receive an exemption for children now, he or she could in the future, if the children will still be dependents at that point in time.
Lastly, there are several tax benefits from being married that people often forget. Both spouses may be entitled to split a tax refund, depending on their filing status and when they divorced. For those who owned a business, they may be able to use losses to decrease the amount of tax they pay in the future. However, those getting a divorce should take care before signing a joint tax return, as both spouses will then be on the hook to repay any corresponding future tax underpayment.
The bottom line is that anyone here in Virginia getting a divorce may want to assemble a team of experts, including a financial advisor and an attorney. A family law attorney in particular can help ensure that a person considers his or her full financial picture, tax implications included. It may be the most important choice they make during the entire process.