Tax Considerations in Divorce Property Settlements
Alabama law prevails over federal law in divorce court unless a special consideration arises, such as a Federal Law that directly contradicts State Law. This sometimes occurs with the Servicemembers and Sailors Relief Act which can affect an Alabama divorce proceeding. Military divorce is often complex and requires a specific level of knowledge to handle. Tax considerations during a divorce should not be taken lightly. They can have severe repercussions in property settlements. A divorce lawyer unaware of current tax considerations during a divorce can often hurt their clients unintentionally.
Tax ramifications can have a substantial impact on a divorce. Certain payments made between spouses are given special treatment about taxation depending on the terminology used in divorce decrees. When drafting and negotiating a divore settlement, careful wording is an absolute necessity for experienced and capable divorce attorneys in Alabama.
Alimony in Gross
Alimony in gross is an attractive tool to use when finalizing a divorce and making a distribution of property. The tax implications of alimony in gross are straightforward. There is none. If two requirements are met, i.e., the amount and time of payment are specific, and the right to receive compensation is vested and not subject to modification, the payment is not deductible to the payor. It is not included in the payee’s income for tax. The payment is not restricted in the time to make the payment or the settlement amount.
It is necessary to know the tax implications of monetary payments may change depending on how they are worded in a decree. When decrees or headings in an agreement conflict, significant issues may arise. Close attention must be given to reflect the proper understanding and intent of the parties in a divorce decree. Suppose a payor, for instance, has deducted numerous or substantial payments believing them allowable by the IRS for tax only to discover later that they are not. There, it can have a considerable impact on the value of a divorce settlement.
Transferring property during a divorce likewise does not result in an immediate tax for either party. The transferee receives the transferors’ basis at the time of the transaction.
Consult an Accountant in Divorce Cases Involving Very Complex Tax Matters
In all matters of taxes, even experienced divorce lawyers are not accountants. In complex cases, it is always wise to consult with an accountant. Our Divorce firm has several accountants we regularly use for complex divorce matters that may involve high assets and complicated tax situations.
Modifications of Property Settlements After a Divorce
Alabama courts have a minimal ability to modify property settlements after a divorce. Primarily, an Alabama court cannot change a property settlement except to correct clerical errors after 30 days from the entry of final judgment approving such as settlement. This applies not only to assets but also to debts. Sometimes a property settlement may need clarifying, and this is usually allowed.
Call us, Your Local Alabama Divorce and Family Lawyers Near You
The lawyers at Alabama Divorce and Family Law, LLC have successfully practiced law for decades and have handled thousands of divorce cases, from simple uncontested divorces to highly complex litigation. If you are thinking about a divorce in Birmingham, Jefferson County, Shelby County, or anywhere in Alabama, please contact us today for a confidential assessment of your case. If you have been served a divorce complaint, you have limited time to protect your rights, children, assets, and reputation. We regularly help clients in divorce proceedings from Mountain Brook, Vestavia, Hoover, Chelsea, Alabaster, Pelham, Bessemer, and across the great state of Alabama.