As early as possible and certainly well before signing a final agreement. Here’s why:
During the divorce process, you may be awarded a temporary payment of support, or you may be ordered to pay a temporary payment of support. Structured correctly these payments may qualify as taxable alimony or deductible alimony. You should make sure you are aware of the tax consequences of these temporary payments. They may go on for longer than one would expect since this process doesn’t always move along very quickly.
Certain tax benefits from prior years may be overlooked. Typically benefits include capital loss carryovers from prior years and unused passive losses. The IRS has special rules for determining how these will be handled and it’s simply not “divide equally” as is sometimes agreed to.
Child-related deductions and credits may need proper planning. For instance, if you agree to split childcare expense equally but are ineligible to claim the credit, you may be paying more than your share of childcare expense. Perhaps a reduction in payment by the ineligible parent would help offset the loss of the credit. You may need to demonstrate to your spouse’s attorney the after-tax cost of each parent towards childcare.
The division of the marital assets should be reviewed to address a couple of questions: Can I afford to keep those items? What is the after-tax value of those items? Unfortunately individuals are asked to make decisions at a time when it feels like life is out of control. We tend to want to hang on to items from our past but we don’t necessarily have a sound financial reason to do so.
Posted in: Financial Planning Services