Heading into a divorce, it’s likely that there are many topics on your mind. Consulting with your tax accountant and your Texas divorce attorney may help you understand strategies and options to minimize the tax consequences of your divorce. Many people are not aware of the tax implications of various divorce decisions.
For example, if spousal support is awarded in your case, the payments are typically deductible by the person making the payments and taxable for the person receiving them. Child support payments, however, are usually not deductible or taxable.
One of the most important pieces of the division of property has to do with retirement plan benefits. The most common method of handling these tax-deferred benefits is known as a qualified domestic relations order. This establishes an alternate payee’s right to receive some or all of the plan benefits. This order does not necessarily require that an IRA be divided, and it’s important to understand that there can be serious tax consequences associated with the division of an IRA.
This highlights the importance of hiring a Houston divorce attorney and a tax accountant to help you understand tax implications. If IRS-approved methods for the IRA transfer are used, for example, penalties and taxes can be avoided. If the transfer takes place before the divorce or separation is final, though, and special care is not taken to minimize tax consequences, the IRA owner may be responsible for taxes on the distribution even if some of those funds are being paid to the other spouse.
Tax issues can be complex and confusing, which is why you should always work with an experienced Texas divorce attorney in conjunction with your accountant to understand and prepare for possible tax consequences of your final divorce arrangements.
Preparing Yourself for the Divorce Process
Although each case is different, it’s important to consult with a Texas family law attorney prior to filing for divorce. Divorce will have many repercussions in your life, and it’s important to understand what to expect before initiating the proceedings.
One of the most common questions surrounding preparation for the divorce process has to do with cost. Although this is a completely reasonable question, the final cost of your divorce will depend on a number of factors. The actions of your spouse and his or her attorney, for example, can significantly influence how soon you will have a final divorce decree. Likewise, the extent to which you and your spouse disagree over critical issues like child custody will impact your timeline. Consult with your Houston family law attorney at the outset to determine the cost of the retainer. Your attorney may also be able to inform you about a reasonable quote and timeline for your case, although this is not final.
To prepare yourself for the divorce process, you can do some of the leg work related to property division and debt division. Make a list of all marital property and marital debt, along with documents to back that up. Having this in hand when you meet with your Texas family law attorney can help to streamline the process of property division in court.
While there is no way to completely prepare yourself for the emotional roller coaster known as divorce, consulting with a lawyer early on in the process can give you an idea of what to expect. You may wish to initiate your case with a separation agreement, for example, and this document can be drafted by your attorney.