CENTRE FOR MEDIATION & DISPUTE RESOLUTION ONLINE

Knowledge Base

Divorce and Taxes 

 

December 1, 2014
Written by Lynne C. Halem

Divorce is a time of major decision-making.  Couples soon realize that they need to determine how to divide their assets, how to structure custodial arrangements for their children, and how much support will be exchanged. Assets, children, and money are the areas recognized by the divorcing population as central to reaching a settlement.  Others are aware that they also need to address questions pertaining to health insurance coverage and even life insurance.  Few, however, consider the tax implications of their agreements.

At the Centre for Mediation and Dispute Resolution, we suggest that all agreements need to include consideration of tax implications, lest you realize tomorrow that the agreements you reached do not provide you with the moneys you anticipated at the time of settlement.

The following listing represents a sampling of areas with tax implications, which should be included, where applicable, in your divorce settlement:

Child-Related Taxes:

Real Estate Sales:

Investment Gains and Losses:

Retirement Funds:

Life Insurance Policies (with equity):

Term Life Insurance:

Transfer of Property:

Support:

The above list constitutes only a smattering of the many tax implications inherent in each couples’ divorce settlement. 

In order to protect both spouses from unpleasant surprises, it is crucial for both parties to understand what they are receiving and what they are really giving up in fashioning their agreement.  Often parties can create better, more beneficial agreements, by “giving “ to their spouse in areas that will not have a negative impact on their own settlement.  The problem-solving element of mediation presents an ideal forum for analyzing tax implications and weighing their “value” to each party.

In the end, the parties’ agreement should focus on tax savings and advantages to be achieved by both parties sharing the common goal of optimizing the “goodness” of their agreement for the family. 


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