Ending a marriage is stressful and complicated. With so many issues on your mind, taxes are probably one of the last things you want to think about. While that impulse is understandable, ignoring the potential tax implications of a divorce could be a serious mistake. If you are getting divorced in Illinois, it is imperative you discuss your financial issues – including taxes, with your lawyer. Here are four of the most important things you need to know about tax planning and divorce:
1. Preparation and Organization is Crucial
When it comes to tax planning, organization is extremely important. One of the primary reasons people end up facing tax trouble after a divorce is lack of proper organization and preparation. It is easy for tax issues to get overlooked in the chaos and confusion of a legal separation. Make sure your divorce attorney has access to all relevant financial documents and records.
2. Only One Parent Can Claim a Child Deduction
Under IRS regulations, only one parent has the authority to claim a child tax deduction or a child tax credit. As a general matter, the parent who has primary custody of the child has the right to claim any child-related deductions. If there is a true 50-50 split of parental time, then it is typically sensible for the parent with the higher income to claim the deduction. A lawyer can help you structure your divorce settlement to account for child tax deductions and tax credits.
3. You May Need a QDRO to Divide Retirement Savings
For many couples, retirement savings are among their most important financial assets. In divorce, this can create some challenges, as retirement savings can be difficult to divide. Do not make an early withdrawal from a tax-advantaged savings account without first speaking to a divorce attorney. You do not want to subject yourself to early withdrawal fees or other tax penalties. If you are dividing the proceeds of a retirement account, work with a lawyer who can help you set up qualified domestic relations order (QDRO). A QDRO is cost effective legal tool that allows married couples to divide their retirement savings without facing the standard financial penalties.
Discuss Your Case with Our Wheaton and Aurora Divorce Attorneys Today
At Keller Legal Services, our Illinois divorce lawyers are compassionate, committed advocates for our clients. If you have any questions or concerns about tax planning and divorce, we are here to help. To set up a free initial consultation, please contact us today. With law offices in Naperville, Aurora and Bolingbrook, we represent clients throughout the surrounding region.