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Think about taxes as you divorce

No matter your income, divorce can be pricey. Divorce is life altering to say the least. You will have to adjust to life apart. It is possible that you may have to get a new place of residence. You will need to go through all of your belongings and divide up your life as you know it. It is likely that your financial plan for the future will need to be adjusted. This can be because you will be reduced to one income. Your children will factor in. The division and selling of assets can also make a difference.

When you divorce, you should keep taxes in mind. Divorce and taxes can be impacted in several ways. 

Here are a few areas you may want to focus on:

  • Asset transfers. You will want to be careful to ensure that the transferring of assets doesn't result in gift tax liability. You will want to also make sure that, if you are making a transfer, it is not included in your taxable estate. Fully consider the tax implications before accepting a transfer or making a transfer. If you are the recipient of an asset that has appreciated, you may owe taxes on the item.
  • The sale of your home. If you plan to sell your home when you divorce, make sure you know how taxes will play into the sale. Under certain circumstances you may not have to pay capital gain taxes. You will want to talk to your spouse about selling the home and decide if it is better to sell the home before or after you divorce.
  • Alimony payment. Alimony received is taxable income. It is not subject to tax withholding. If you are the one paying alimony, you can usually deduct payments from your income, and therefore it is included in your gross income.
  • Your children. You will want to consider your parenting arrangement. Decide who will claim the children as dependents. If you claim the children as dependents, you may be entitled to certain tax credits.
  • Retirement accounts. You may be entitled to a share of your spouse's retirement accounts and vice versa. As you divide the accounts, you will want to make sure you don't lose any tax advantages.

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