What to Know About Divorce and Taxes in North Carolina
What to Know About Divorce and Taxes in North Carolina
Divorce is the legal separation between two people that can have lasting financial implications for both parties. North Carolina residents should be aware of how divorce impacts their taxes and financial standing so that they can make informed decisions. In this post, we will discuss alimony considerations, child support and tax liability, home sale gain exclusion, retirement plan assets, business interest transfer, and how an attorney can help during the divorce process.
Alimony Considerations
Alimony, also known as spousal support, is a payment from one spouse to the other during or after a divorce. For tax purposes, the recipient must report the income as taxable and the payer can deduct the amount paid. However, it's important to note that starting in 2019, alimony payments will not be deductible for the payer and not taxable to the recipient, unless their divorce agreement was executed before 2019. These changes may affect both parties' tax liability.
Child Support and Tax Liability
Child support payments are not deductible for the payer or taxable for the recipient, meaning they don't affect tax liability. However, if a spouse pays both alimony and child support, they can only deduct the alimony payments.
Home Sale Gain Exclusion
One of the biggest assets a couple may own is their home. In North Carolina, if a couple sells their primary residence and files separately, each spouse can exclude up to $250,000 of their share of the gain. If they file jointly, they can exclude up to $500,000. However, if the couple divorces, this exclusion is unused because only one spouse can claim the exclusion.
Retirement Plan Assets
Dividing retirement plan assets during a divorce can be challenging. The spouse who receives the funds must pay income tax on the distribution unless it is transferred directly to an IRA account. It's essential to detail the terms of distribution of 401(k), 403(b), or IRA accounts in the divorce agreement to avoid tax penalties.
Business Interest Transfer
If a couple owns a business together, divorce can significantly impact its operation. If one spouse buys the other's share of the business, they may owe taxes on the proceeds. The spouse receiving the money must report it as taxable income, while the business owner can claim the capital gains tax.
How Can an Attorney Help
A divorce is stressful and complicated. An experienced attorney can help you navigate the legal proceedings and protect your rights. An attorney can explain how the divorce agreement affects your taxes, help negotiate a fair settlement, and ensure that the agreement is tax-efficient.
Divorce can significantly impact your finances and future, and it's essential to be aware of the tax implications of your divorce agreement. We understand that divorce is a life-changing event, and the legal complexity can be overwhelming. The Stiltner Law Firm, PLLC can assist North Carolina residents who are facing contested divorce matters and navigate the legal proceedings to protect their rights and future. We are committed to providing tailored, effective legal counsel to help our clients move forward with confidence.
