Divorce and Taxes: What is Deductible in a California Divorce?

Even though tax season is technically behind us, it is never too soon to start planning for your financial well-being, particularly if you are considering filing for divorce in California. Major tax issues can arise when a couple divorces or files for legal separation and the date of separation can play an important role in whether you file as single or married.  With the change in your marital status often comes a number of potential other challenges that can alter liabilities, and thus have to be taken into account by your family lawyer when structuring your marital settlement agreement.

What expenses are deductible in a California divorce?

Divorce can be a costly ordeal, both financially and emotionally. Fortunately, some of these financial expenses are deductible. Others are not, and knowing the difference is extremely important. For example, attorneys’ fees incurred in connection with a divorce are generally personal expenses, even though the divorce may have significant business implications (read more about community contributions to a separate property business here).

However, as a savvy Los Angeles divorce attorney will attest, there are exceptions. Attorney’s fees incurred in connection with a divorce are deductible in a few circumstances. When deductible, attorney’s fees are treated as “miscellaneous itemized deductions.” They are deductible only to the extent they exceed 2% of the taxpayer’s adjusted gross income and are subject to a phase out when the adjusted gross income exceeds a certain amount. Further, they cannot be taken into consideration when computing the alternate minimum tax. In order to take advantage of the 2% rule, the client should pay all deductible legal fees in one year.

Can I still claim my kids as my dependents?

Generally, a parent can claim children as dependents if that parent has been designated as the custodian by court order. If you have joint custody, the custodial parent is considered to be the parent who has physical custody of the child for most of the year. Things can get tricky if you share custody 50-50, and a divorce lawyer experienced in tax issues can walk you through the process.

Can I write off the alimony I pay my ex?

In most cases, paying alimony will help you lower your tax bill. As an above-the-line deduction, you don’t have to itemize it to get the tax advantage. However, if you and your ex-spouse continue to share a residence after the divorce, any alimony payments made during that time cannot be deducted. Furthermore, the payments have to be pursuant to a written separation or divorce agreement, and cannot be considered child support.

As you can see, there are several issues to take into account when it comes to taxes and your divorce. For more guidance on the process, contact the expert Los Angeles family lawyers at Walzer & Melcher today.

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