Divorce is one of the most emotionally challenging and confusing processes for most couples. Taking apart a life two partners build together carefully can be a complicated task. It becomes even more complicated when it comes to the division of the shared financial and material assets, and without professional help from an experienced divorce attorney, things can get out of hand quickly.
While dividing the assets and determining who gets what, no one thinks about the long-term consequences of the divorce in terms of taxation. Although it might be tempting to cut off all communication with your soon-to-be former spouse and divide the assets quickly, it is important to realize that your decisions today can have lasting tax implications on your future finances.
It is essential to remain calm and think wisely when it comes to looking at divorce through the lens of taxation.
Here are five financial tips that will help make your divorce proceedings easier and help untangle your complicated shared finances.
Finalizing the Divorce at the Right Time
Finalizing your divorce at the right time can help save you money long-term if you strategize beforehand. It is advisable to finalize your divorce with experts like family lawyer Brisbane, in January of the coming year to avoid increasing your tax bill. Depending on the income of individual spouses, they can be placed in a higher tax bracket if they earn more and vice versa.
Deciding Your Tax Filing Status
When it comes to filing taxes, your marital status (single/divorced) on the last day of the year matters because it applies to the next financial year. The divorcing couples who have not finalized their divorce before January need to decide how they will file their tax returns. Depending on your personal preference, you can continue filing your taxes jointly or separately. Choosing to file your taxes jointly can save you money when it comes to your taxes.
Determining Who Gets the Tax Credit
The divorcing couple also needs to decide who will get the Child Tax Credit for the current and coming years. Technically, it goes to the spouse who has custody of the child for the majority of the year. It is, however, possible for both partners to alternate every year or choose to divide the tax credit in case of more than one dependent.
Splitting Your Assets Wisely
When it comes to taxation, not all assets are treated the same. Therefore, simply arranging your assets and splitting them in half does not work, because the tax consequences of each asset can vary widely. For instance, dividing a similar amount in cash and stocks can be very different when it comes to filing taxes since you need to pay the capital gains tax on the stocks.
Hiring a Professional
If you find the whole tax ordeal difficult to handle yourself, you can always hire a professional divorce financial analyst to handle things on your behalf. Separating from your spouse can be an emotionally challenging time, and getting professional help for your finances can work wonders for you moving forward.