People who are going through a divorce will need to consider how their taxes will be affected. It is important to understand both Tennessee and federal law. People should be aware that they may not be able to file as single until their divorce is finalized.
The Tax Cuts and Jobs Act has eliminated both the ability to deduct alimony payments from federal taxes and the dependent exemption. However, there might be deductions a person can take under state law. How property is divided will also affect taxes. If the couple is going to sell the family home, they may want to complete the sale while they are still married since they may have a more favorable tax situation than if they were single. There may be tax obligations or even specific federal or state laws relating to how certain assets can be divided.
Another consideration is dividing retirement accounts. The couple might need a document called a qualified domestic relations order. This is not necessary for an IRA since a division as a result of divorce is not a taxable event, but people might want to see if it is possible to avoid an early withdrawal penalty. People may want to consider working with a financial advisor who has a background in divorce.
An attorney can also be helpful throughout the divorce process. The couple might not have to go to litigation. They may be able to come to an agreement about property division, child custody, and child and spousal support during mediation. In some cases, couples might reach an agreement on certain aspects of the divorce settlement but might have to go to court regarding others. A judge will try to divide property equitably and make a custody decision that is in the best interests of the children.