While love and affection are typically major factors in a couple’s decision to wed, marriage is at base a legal agreement, and this fact is most obvious in matters of taxes and divorce. According to New Jersey law, marital property is subject to equitable distribution upon divorce. However, as we’ve said before, equitable distribution does not necessarily mean that the property will be split equally between the spouses.
With that in mind, let’s consider the possible tax implications if a divorce is particularly contentious.
It isn’t uncommon for one spouse in a marriage to handle the majority of the financial matters, such as filing taxes and keeping track of the bank accounts. The other spouse likely takes care of other household duties. However, this situation has the potential to turn into a mess in the last year of a marriage, when the final tax returns have to be filed.
If you are going through a divorce and don’t know how your soon-to-be ex is filing taxes for both of you, it is a good idea to apprise yourself of that information as soon as possible. The way your taxes are filed — either jointly or singly — can affect the amount you receive in the divorce settlement.
Also, if you or your spouse has a retirement account, keep in mind that the funds can be distributed as marital property, and there is typically a tax burden associated with that distribution. In negotiating a divorce settlement, that tax should be taken into consideration, as should property taxes on any real estate you might divide.
The takeaway here is to get a clear picture of what your financial life will be like in the year after your divorce and beyond. An attorney with experience in property division can help clarify that picture.
Source: Forbes, “Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex,” Peter J. Reilly, Jan. 7, 2014