As many in Texas breathe a sigh of relief following the end of tax season, some are already thinking about their tax obligations for 2014. Among those are spouses who are considering a military divorce, and who are wondering how that change will affect their tax outlook for the years ahead. The manner in which tax issues are handled within a divorce is important, and it is smart to begin thinking about those issues before the negotiation process begins.
One aspect of divorce that can have a significant impact on taxes involves parents who will share custody of their kids. In many cases, the spouse who will have primary custody will also retain the right to claim the children on his or her tax return. This is not always the case, however, and many couples who share custody will negotiate a plan that outlines which parent can take advantage of the tax benefits of claiming a child as a tax deduction.
One solution is to alternate years, so that each parent is able to enjoy the deduction for a portion of the years before the child reaches the age of maturity and can no longer be considered anyone’s dependent. Another tactic is to evaluate each party’s tax outlook, and determine if it makes sense to give one parent the right to claim the child(ren) every year. An example would be a scenario in which one parent cannot make use of the tax deduction due to a requirement to pay the Alternative Minimum Tax.
These are just some of the tax issues that will accompany a Texas military divorce. Each family will have their own set of tax-related issues as they prepare to end their union. In many cases, hiring a tax advisor can help both parties work out an agreement that makes good financial sense, and allows both sides to minimize their tax burden for the years that follow their divorce.
Source: Reuters, “What’s even worse than a divorce? For some, it’s the taxes“, Lauren Young, April 10, 2014