New Jersey Tax Matters and Divorce


There is an old saying that the only safe things in life are death and taxes. Hopefully death is far away, but unfortunately taxes are here with us in the foreground. In the divorce process, the issue of taxes is something that is considered in several stages.

Filing Taxes After Divorce in NJ

First, your tax status (married declaring jointly, single, head of household, etc.) is based on your status on December 31 of a given year. The timing of the actual divorce can be important in maximizing dollars. For example, suppose you filed a joint declaration during the marriage. Chances are, your employer payroll deductions will be calculated based on this filing status. When your marriage is dissolved, you’ll need to declare yourself as single (or head of household – but we’ll talk about that later). Suppose you get a divorce at the end of the year. In this case, it could result in a large sum owed to Uncle Sam due to withholding taxes for the majority of the year based on filing a marriage, but in fact having to be single. One way to mitigate this is to postpone the actual divorce until January 1 of the new year. If you’ve settled your case, and it’s towards the end of the calendar year, it may be possible to wait until the first part of next year to get a divorce. You should discuss your divorce postponement options with your accountant and lawyer to identify what is best for you and your family.

Divorced parents claiming children on taxes in NJ

Children come with a lot of joys, a lot of worry, and a myriad of tax considerations in a divorce or break-up. First, an important consideration when children are involved in a divorce is how the parents will share the tax benefits of the children. Who will claim the child or children as dependents? If both parents meet the IRS criteria for claiming a child, more often than not a court will allow the parents to share that. If there is a child, the parents will alternate, and if there are two, each will claim one, then alternate when the older one can no longer be claimed. The ability of parents to claim a child often depends on child support and related expenses.

Child Support and Post-Divorce Taxes in NJ

Another tax consideration with children is in the calculation of child support. Child support is largely based on the parents’ net disposable income (after tax). If the paying parent has to share the dependent allowance for the child or children, this should be factored into the child support. Most courts and lawyers use software to calculate child support, and without attention the computer will often make assumptions, including filing status, and who claims the child or children as a dependent. Failure to pay close attention to these inputs may result in the paying parent being charged an incorrect (and too high) amount of tax, resulting in lower net income and lower child support amount.

New Jersey Alimony Tax Act

In 2018, tax laws changed and support is no longer taxable for the beneficiary and deductible for the payor. However, this does not necessarily end the query. Support is based on several factors, including how much money the recipient needs. If a party has significant tax issues, this can be considered.

Fair Distribution and Post-Divorce Taxes in NJ

There are many tax and equitable distribution issues in a divorce, and it is impossible to discuss them all in one blog. However, there are specific issues you should be aware of and consult with your accountant and lawyer before entering into a deal or taking a position at trial regarding a particular asset. This is because New Jersey divorce laws specifically require that a judge consider tax consequences when making a fair distribution of assets.

It is easy to simply add up values ​​and “horse trading” assets. In other words, let’s say all assets are equal to $ 2,000,000. One spouse takes the house and the brokerage accounts, and the other takes the retirement accounts and money market accounts. Sounds good, but what might not have been taken into account is that the brokerage account may be worth $ 600,000, but it is made up of Tesla shares that were purchased at the start of the business. company and which have grown significantly in value. Selling those shares will be a big tax-paying transaction, so the spouse who thought they could get $ 600,000 could get a lot less after-tax. During this time, the retirement account has not been taxed, but depending on when it is liquidated, the net amount will change depending on the tax rate of the account holder. Deferral of capital gains and losses are also important issues that must be resolved to ensure that there is no unfair advantage or harm to either party when making a decision. a divorce.

These are just a few examples of why it is so essential to ensure that your lawyer is aware of these issues, and that a financial advisor or accountant is consulted when discussing a fair distribution.


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