Once again, we have entered the season with which many accountants have a love-hate relationship: Tax Time. Although it may not be apparent on first blush, there are several tax consequences associated with divorce. These tax consequences can only be appropriately addressed if you are aware of them. Without adequate knowledge, it is very possible to fall victim to one of the five tax related traps outlined below. This is why it is extremely important to consult with an attorney who specializes in family law, specifically divorce, to help you navigate through the divorce process in Georgia.
1. Failing to have an institution-to-institution transfer of retirement funds and therefore having to pay taxes on those funds. Do you know how to correctly transfer qualified retirement funds upon divorce to avoid taxes? Speak with your divorce attorney regarding Qualified Domestic Relations Orders to see if one may be necessary to divide and transfer retirement funds upon your divorce.
2. Not knowing when you can withdraw retirement funds from a retirement account without paying a 10% penalty if you are younger than age 59 1/2. Attorney fees are not the only costs of divorce. Financial missteps during divorce can easily overshadow the known costs.
3. Failing to realize that your alimony will be taxed. If you are seeking alimony in your divorce matter, it is absolutely essential that you know that alimony is deductible to the payor and treated as taxable income to the recipient spouse.
4. Failing to have tax credits and refunds or capital gains or losses carried forward as divisible assets listed in the Marital Dissolution Agreement or Final Decree or Divorce. Do not forget about those assets. If you do, you may unintentionally give your ex-spouse a parting gift. Paying attention to details is vital during divorce.
5. Not deducting your attorney fees that are attributable to receiving alimony or retirement funds, if you qualify. Do you know if you qualify? This information can potentially save you hundreds or thousands of dollars.
If you are currently contemplating or going through a divorce here in Georgia, and you want to ensure that you do not fall victim to any of the traps outlined above, speak with one of our experienced divorce attorneys at Meriwether & Tharp. The members of our Atlanta Divorce Team will be able to offer you sound advice to guide you through every aspect of the divorce process.
By A. Latrese Martin, Associate Attorney, Meriwether & Tharp, LLC