Couples in Illinois may be faced with a number of tax considerations when they pursue a divorce. In addition to changes to how a person files his or her tax return, the division of marital property might be influenced by tax exemptions and burdens. A financial advisor discusses a number of these issues in a recent article.
The first issue that the piece focuses on is how taxes might affect property division. When attempting to divide property equitably, a couple may need to consider the value of assets after they have been subjected to state and federal taxes. In addition, different assets may be subject to different level of capital gains tax exposure, which dramatically affect how valuable the asset is in the future. Tax considerations also come into play when deciding ownership of a couple’s jointly owned primary residence. A divorcing couple may have the option of moving full ownership to either party in a tax-free transfer, but if the couple plans to sell a home together, they are given a $500,000 break on capital gains taxes.
Couples might also have options concerning filing status on their tax returns during the divorce process. Before the divorce is finalized, the couple could file either jointly or separately. While filing jointly generally provides a lower tax burden, filing separately allows a certain amount of protection from liability if the other party does not fully comply with his or her tax payments. After the marriage is officially over, both parties may need to file as single.
Beyond tax incentives, there are other issues that might affect how a person negotiates the specifics of property division. Working with an attorney, a client could be able to pursue an equitable settlement that provides for the financial future of both parties.
Source: Nerd Wallet, “Divorce: Making Sense of the Confusion“, J. Kevin Stophel, June 03, 2014