There may be a number of tax implications in divorce associated with the property settlement. These issues may include the taxation of income or capital gains attributed to one party in the allocation of property, spousal support (alimony) issues, and other property division issues.
Tax Rules for Spousal Support and Property Settlement
Generally, spousal support is taxable to the recipient and may be credited as a tax deduction to the payer of the spousal support. This has the effect of making spousal support less expensive then it may appear from the standpoint of gross dollars paid in support, while the recipient of the spousal support receives less because it is taxed to the recipient just as ordinary income. The same is not true as to child support, which is tax free and not deductible.
Further, while property transferred between parties in a divorce does not, in and of itself, create a taxable event, there are potentially serious tax consequences associated with the later sale of property transferred after the divorce from the person who received the property in the divorce resolution. The tax implications associated with property settlement and spousal support must be carefully examined in each case.
The Need for Competent Advice
Numerous tax codes and regulations will govern the tax implications of property settlement in a divorce case. Furthermore, the regulations, which exist at local, state, and federal levels, are constantly being evaluated and subjected to change.
As such, it is critically important that any person facing divorce seek competent advice from a Michigan divorce lawyer regarding the tax implications of their particular property settlement. In some cases, it may also be necessary to seek counsel from an accountant.