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New law makes taxes a major issue in divorce

One of the biggest and most complex parts of a divorce can be the financial planning that goes into negotiating an agreement and determining how properly divide the assets and allocate income. Tax planning has always been a big part of this, particularly for couples who have joint retirement savings or other jointly held investments in a business.

New tax laws under the American Taxpayer Relief Act has caused increased coordination between divorce attorneys and tax accountants, as the significant tax implications of a divorce become a major factor in the overall finances. The new law raised income tax on individuals making more the $400,000 per year, which may affect the decision to opt for graduate payments versus a lump sum for spousal support. At the same time, careful planning and meticulous account can help families understand and properly utilize the tax exemptions for child support.

The early part of the year is a common time for couples to file for divorce, particularly those looking for a clean slate and to simplify accounting during the process. By choosing to file in the beginning of the year, they are still able to file taxes jointly for the previous year, but hopefully contain the messiness and confusion of the divorce process to a single calendar year.

New tax rates on investment income also effects the evaluation of a divorce, resulting in more trading among the parties and less selling of stocks to create cash. With a 3.8 percent surtax on capital gains, some Ohio couples are choosing to wait to sell stocks.

Source: The Wall Street Journal, "New Tax Rules Complicate Divorce" Arden Dale, Jan. 31, 2013

More information on dividing property and other things in a high-asset divorce is available on our Columbus property division page.

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Paul R. Panico

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