Tax considerations are important in almost every aspect of a divorce. With respect to support, child support is not tax deductible, but spousal support is deductible. In cases where one party earns much more than the other party, it is sometimes possible to structure child and spousal support as all "family support" which is all tax deductible to the paying party. The advantage to this approach is that the paying party then has a greater tax write-off and there is more money after to taxes to meet the needs of both parties.
The built-in tax liability should be considered for any assets that are subject to division in a divorce action. For example, the allocation of an IRA worth $10,000 to one party and a CD worth $10,000 to the other party would not be equal because the IRA is fully subject to tax at a later time. Likewise, many stocks and bonds and parcels of real property may have built-in capital gains because they have appreciated beyond their purchase price. The tax basis of property should be considered in the property division in a divorce. All property, including business interests, stock options, and other investments must be properly valued in a divorce. Proper valuation includes in certain circumstances the consideration of the reduction in value of the property because of future taxes.
The portion of legal services in your divorce that is devoted to tax planning is deductible on your income taxes. Be sure to ask your attorney for a breakdown of his or her services that are devoted to tax planning.
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