Lyttle Law Firm is featured on Austin Woman Magazine! Serving clients since 2010, we are so proud of our firm and our work!
Attorney Daniella Deseta Lyttle of Lyttle Law Firm, PLLC, was featured in the March 2021 Edition of Women to Watch!
If you are looking for an attorney to handle your family law, immigration law, or your wills & estates matters, contact us at (512) 215-5225. Our attorneys are ready to assist.
When two people are filing for divorce, the last thing on their mind is taxes. Divorces are already highly stressful events, and the tax confusion doesn’t make it any easier. Some of the tax issues that will arise include deciding what status to file under, paying taxes on alimony, deciding which parent gets to file any children as dependents, and so on. Understanding these issues are the best way to ensure you and your soon to be ex-spouse reach a fair agreement.
Understand Filing Status
Your filing status depends on your marital status on the last day of the tax year. So, if you are still married and living together on December 31st at midnight, you must file either as “married filing jointly” or “married filing separately.” If you are considered legally separated, or you have not lived together for at least 6 months of the year, you must file as “single” or “head of household.” This also applies if you were married for part of the year, but divorced before December 31st. Typically, the custodial parent of a couple’s children is who files as “head of household.”
“Head of household” and “married filing jointly” filers will typically pay lower taxes than those filing as “single” and “married filing separately.” So, if you’re presently going through a divorce, you should try to file as “married filing jointly” so that you both can save some money while you still can.
Understanding The Tax Implications Of Child Support And Alimony
Child support cannot be deducted by the person paying it, and the spouse receiving it is not required to pay taxes on it.
Alimony, on the other hand, is tax deductible by the spouse paying it. The spouse receiving alimony must treat it as taxable income as well.
If a couple decides to combine alimony and child support into what’s called “family support,” the monthly payment is tax deductible for the spouse paying it, while the spouse receiving it must pay taxes on it.
Understanding Which Parent Can Claim Children As A Tax Exemption
Unless the divorce decree states otherwise, the child tax exemption goes to the custodial parent. If parents have joint custody, the parent who has the child the highest number of days in the tax year is eligible to claim the exemption.
If you are the custodial parent of a child under the age of 13, and you incur work-related child care costs, it can be claimed as a tax credit. This is only applicable to the custodial parent, however.
Many people entering a divorce often don’t have a full understanding of just how expensive the process of separating from their spouse can be. Even if you’re divorcing under amicable circumstances, if you’re careless and don’t take care of your finances, your soon-to-be ex-spouse could make a serious impact on your long-term financial health.
If you’re going through a divorce, it’s understandable that you wouldn’t want to deal with complicated financial matters in the middle of an emotionally draining time of your life. However, you cannot afford to detach yourself from these issues and have someone else decide the future of your finances. If you want to retire with your savings and pension intact, follow these strategies.
Gather As Much Documentation As You Can
Being prepared with sufficient documentation is half the battle in property division. The side with the most paperwork and records at their disposal is often the one that walks away having protected their interests. At the very least, you should have three to four years’ worth of financial statements, whether from individual or joint accounts.
If your soon-to-be ex were to make a large purchase using your joint account before the divorce is final, any documentation you have will allow your lawyer to include the purchase in the property division process.
Know the Ins and Outs of a QDRO
A Qualified Domestic Relations Order (QDRO) is a document that splits and changes the ownership of qualified retirement plans like pensions and 401(k)s. The approval of a QDRO is notoriously complex, and if an administrator like Vanguard or Fidelity Investments handles your investment plan, tiny mistakes (such as using “and” instead of “but” and vice versa) in processing a QDRO can lead to exorbitant fees, not to mention having to start the process all over again.
Get an Experienced Divorce Lawyer
Even if you’re separating from your partner under the best of circumstances, it’s still a good idea to have a skilled divorce lawyer by your side to help you protect your finances. A lawyer can help prevent you from making the most common financial mistakes divorcing couples make, which will be a godsend in cases where the divorce is tumultuous, or where your ex is making unreasonable demands in terms of alimony or asset division.
Get a Financial Planner
While your divorce lawyer can certainly help protect your finances, financial planners live and breathe numbers. They understand taxes, interest rates, fees, and actuarial calculations in ways most divorce lawyers don’t. Having a financial planner working with your attorney can expedite the process of dividing assets and ensure you’re on top of your future tax and credit obligations. Lastly, a financial planner will protect your credit score during and after the divorce, preventing your former spouse’s financial decisions from affecting your ability to take on loans in the future..
People get married because they love each other and get married to show the commitment they have for each other. But, what happens when things don’t work out? No marriage bond is absolutely break-proof. Divorce can happen to anyone at any time. We take precautions for everything else. We buy insurance for our cars, jewelry, electronics, why not our marriage too?
Too often we hear that preparing a prenuptial agreement or even considering one is like “planning for failure in your marriage” or “if you have to plan your divorce before you get married, don’t get married.” But, why does it have to be this way? It doesn’t.
Prenups are good for everyone – they don’t discriminate!
Prenuptial agreements (prenups) aren’t meant to “doom” your marriage. Prenups can cover a wide array of items that are important to you, such as your property, retirement, and financial accounts. They can essentially fix financial issues that could arise in your marriage before they actually do. A prenup can help protect your assets that you’ve worked so hard for. Or maybe you are both just starting out in your careers but estimate to acquire a significant amount of assets throughout the course of your lifetime. A prenup can detail how business(es), investments, and any bank accounts and assets, if acquired, will be managed
Moreover, prenups are not exclusively for the “wealthy” either. Prenups can help to protect not only your assets but to also ensure that should you pass before time, your assets/estate goes to the person or people you intended. This is especially important for people who are entering into a second marriage and have kids from a previous marriage as well. Who do you want to benefit from your estate? Equally or unequally? A prenup can outline this simple issue.
Prenups can also help to protect you against debt. Once married debt acquired is marital debt. It means it becomes your debt, we are after all, in Texas, a community property state.
What if it turns out that your spouse has a gambling addiction which s/he forgets to tell you about until it’s too late? It’s better to prepare rather than spend the rest of your life trying to pay that debt off. The cost of the prenup will definitely be less expensive than hundreds of thousands spent without the protection of a prenuptial agreement.
The elements of a prenup…
In order for your prenup to serve its purpose:
- Both parties have to agree to give “full disclosure” of each one’s liabilities, income, and assets. You have to do the best to avoid a claim of fraud, duress, and or misrepresentation.
- Each contracting party must hire their own attorney to. Your attorney will draft your prenup and your spouse’s attorney will review the terms of the agreement to help avoid any misunderstanding(s).
- The agreement must be in writing, signed by both parties and their respective attorneys, and the agreement must be notarized.
If you find yourself considering having a prenup drafted, don’t wait until the week before your wedding. Sure, there are much more fun things to think about when wedding planning such as the bachelor/ette party, cake tasting and venue searching, but find some time to talk to your attorney about a prenup as well. Considering each party will need to find an attorney to review the prenup you’ll need to have it ready way ahead of your wedding day to review it as many times as necessary without the stress. Remember you do not want to pressure your new spouse or be pressured into signing anything without the time to review. Drafting a fair and enforceable prenup agreement takes time. The longer you wait, the higher the risk that one of you will be unhappy with the agreement and not be able to resolve it in time. The levels of stress will increase. Why put that damper on your wedding if it’s unnecessary? Continue reading