Seder & Chandler, LLP
Worcester 508-471-3018
Westborough 508-709-0024

Tax consequences of a Massachusetts divorce

The division of marital property during the course of a divorce can be emotionally and financially difficult. The settlement reached regarding property division will impact each person's finances for years to come. Massachusetts state law provides for an equitable distribution of property. This does not require a 50/50 split of assets. Furthermore, property division is negotiable.

A Massachusetts divorce attorney can help couples achieve the most optimal property division for each situation. Things such as asset valuation and liquidation, and characterization of assets as marital or separate property must be considered. Another important consideration is the tax consequences of a property settlement agreement and a domestic support obligation.

Many people who are going through a divorce overlook the federal income tax implications of the divorce. For example, payments for child support are generally not deductible by the paying spouse, and are tax-free to the recipient. The opposite is true for alimony. Alimony payments are deductible by the paying spouse and are taxable to the recipient. For these reasons, it is important for the property settlement agreement and divorce decree to accurately reflect the parties' intentions.

People who divorce before the end of the year are required to file their own federal income tax return as an unmarried individual. Depending on the situation, person may be better or worse off as an unmarried filer. If the couple has children, generally the parent who has custody of children for the majority of the year is entitled to claim a dependence exemption for the children. Which party will claim the exemption for years to come should be addressed in the property settlement agreement.

In regards to division of property, property transferred in the course of a divorce is tax-free to the recipient. However, if that person later sells the property, they must report it as a realized gain or loss. Other special rules may apply to the sale of a primary residence, retirement plans and life insurance policies. For these reasons, it is important to consult with a knowledgeable Massachusetts divorce attorney regarding any potential tax consequences of a divorce.

Source: The Willits News, "Watch for tax angles in divorce agreements," Jim Angell, Nov. 7, 2012

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