With the passage of the American Taxpayer Relief Act (ATRA) on January 1, 2013, the United States avoided the financial abyss of the much-feared "fiscal cliff."
Do You Understand How the ATRA Is Going to Affect Your divorce in 2013?
If you're seeking alimony, your spousal support is taxable (this isn't new). However, if once you become a single filer and you earn $400,000 or more annually, your tax rate will increase under ATRA from 35% to 39.6%
Whether you command a high salary or not, you will want to discuss with your lawyer the balance between spousal support and child support. Unlike spousal support, child support isn't taxable so you may negotiate a higher child support payment and lower spousal support allotments.
Another alternative for spouses entitled to alimony is to receive a lump sum payment. By accepting a one-time payment in lieu of monthly spousal support, you can avoid taxes.
If you are paying spousal support monthly, the payments are deductible. However, if you settle on a lump-sum payment, you will not receive a deduction on your taxes.
Your Investments, Capital Gains and Retirement Funds
Under the ATRA, there is now a 3.8% Medical surtax on capital gains, dividends, and investment income above $200,000 as long as you are a single filer.
If you forego spousal support and instead negotiate your share of retirement funds, the potential exists to avoid capital gains and not pay taxes until money is withdrawn once you retire.
4 Financial Tips As You Prepare for Your Divorce
- Make copies of all financial documents: end-of-year bank statements, investment reports, loan statements, your spouse's W-2, etc.
- Obtain a copy of your credit report. You'll need a good credit history if you plan to purchase a new home following your divorce.
- Open new bank accounts in your own name. This is a step many people forget to take. As soon as you decide to divorce, even if you are still living together, open your own savings and checking accounts. If you don't have a credit card in your own name, secure one.
- If you believe your spouse is hiding income, discuss with your attorney the option of filing a separate tax return.
Do you have questions about your divorce, children's issues, or spousal support? If so, call me or schedule a consultation with the Law Offices of James V. Sansone at 707-623-1875 or contact me by email. You can find additional information on family law, children's issues, spousal support, domestic violence as well as a list of resources you'll find helpful on our website.