Even a relatively straightforward divorce in Rockford, Illinois, can raise important tax questions. Incidentally, depending on the circumstances, these same issues can affect unmarried couples and those choosing to remain married but live in separate households.
One of the most obvious questions is that of which parent gets to claim the children as dependents for tax purposes. The IRS has separate rules which govern this situation, and these rules generally favor the parent who has the children in his or her home most of the time.
However, a divorce decree, or similar court order, can effectively split the dependency exemption by requiring a parent to legally surrender his or her right to the exemption for one or more children in a given tax year.
There are other tax issues as well. This blog has already written on the point that, at least for now, alimony is tax deductible to the person paying it and taxable income to the person receiving it. Moreover, homeowners need to keep in mind that the payment of interest on the mortgage and the local property taxes are themselves tax deductible with respect to federal income tax.
As divorces and separations get more complicated, other issues, often involving capital gains, can emerge. This is particularly true when a Rockford couple owns a business or has investments aside from the typical 401k or other retirement plan.
The bottom line is that in just about any family law matter, one has to keep the tax consequences in mind, usually with the help of an attorney experienced in family law. Not being aware of them could mean that what seemed like a good deal was in fact anything but. In the worst cases, a person can be caught unaware that he or she will be responsible for thousands of additional dollars in taxes.