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TX high asset divorce lawyerDuring a high net worth divorce, you will need to address a wide variety of financial issues, and the decisions you make can have a significant impact on your finances and your ability to provide for your family in the future. As you address matters related to the division of property, spousal support, and child support, you will need to be sure to understand how these issues will affect your taxes. This will help you avoid surprises related to tax debts, unexpected tax obligations, or other concerns that could affect your financial stability. Some of the tax-related concerns that you may need to address during a high asset divorce include:

  • Filing status - Once your divorce is finalized, you will no longer file taxes jointly with your spouse. However, it may be beneficial to file joint tax returns if you were still married in the year(s) before your divorce, and you may need to work with your spouse to ensure that all relevant financial issues are considered, including how you will divide any tax refunds or who will be responsible for paying taxes owed. Following your divorce, you will likely need to make a variety of adjustments when filing as a single person, and you may need to review the deductions or exemptions that you may be able to take and determine the best strategies for minimizing your tax burden.
  • Dependents and child tax credits - If you and your spouse have children, only one of you may claim them as dependents and receive any applicable tax credits. In many cases, the custodial parent will claim children, although you may be able to negotiate an arrangement that will provide you both with the maximum tax benefits. Following your divorce, you should be sure to update your tax withholding information to make sure the correct amount of taxes is being withheld from the income you earn.
  • Taxes on alimony - In the past, spousal support was tax-deductible for the payor, and it was considered taxable income for the recipient. However, this changed in 2019. A payor can no longer deduct alimony payments, and a recipient will no longer need to pay taxes on spousal support. This can result in more overall taxes being paid and lower alimony payments. However, spouses may be able to find other arrangements that are more financially beneficial for both parties, such as allowing a spouse to receive a larger portion of the marital estate instead of alimony or creating a trust that will provide ongoing payments to the recipient.
  • Property taxes - Spouses will need to consider the taxes associated with any assets they will own after the divorce, including property taxes on the marital home, vacation homes, or any other real estate property. A spouse should be sure they will have the financial resources to pay these taxes on an ongoing basis.
  • Capital gains taxes - While taxes will not apply to any assets transferred between spouses within one year after their divorce is complete, the sale of assets such as stocks or real estate during or after divorce could result in capital gains taxes. Spouses should be sure to understand what taxes will apply in these cases and who will be responsible for paying them.
  • Retirement accounts - When transferring funds in accounts such as 401(k)s or IRAs between spouses, a Qualified Domestic Relations Order (QDRO) should be used to ensure that taxes will not apply to these transfers and that a spouse will not be required to pay penalties for withdrawals made before reaching retirement age. Spouses may also need to address the tax implications of dividing pension benefits or other executive retirement benefits.
  • Business taxes - If either spouse owns a business or professional practice, they will need to determine how taxes that apply to the business will affect the decisions made during the property division process and the income that they earn on an ongoing basis. As part of the business valuation process, spouses will want to consider the taxes owed by a business, whether the business is structured as a pass-through entity, and how business losses will affect taxes owed in the future.

Contact an Austin High Asset Divorce Lawyer

The attorneys of Powers and Kerr, PLLC can make sure you have fully considered the tax implications of the decisions you make during your divorce. With our extensive experience handling complex financial issues, we can help you reach a resolution that will protect your financial interests and allow you to provide for your family’s needs. Call our Austin, TX high net worth divorce attorneys at 512-610-6199.

 

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Posted on in Child Support

TX high asset divorce lawyerChild support in a high asset divorce can work a bit differently than child support for a low-income family or a middle-class family. While Texas’s child support law still applies, the calculation for and amount of child support will likely be quite different. If you are anticipating a high net worth divorce in Austin, Texas, it is important to discuss all aspects of the divorce process with an aggressive Texas high asset divorce lawyer. In the meantime, we want to say more about child support in Texas and how high net worth parents should be thinking about child support in relation to their divorce.

General Information About Texas Child Support Laws

Before we explain how a high asset couple should be thinking about child support in their divorce, it is essential to understand how child support works under Texas law. First, Texas is one of only a handful of states that still uses a “percentage of income” model. While a number of states have shifted to an “income shares” model in which both parents’ incomes are used to calculate a total child support obligation, Texas only uses the income of the obligor parent’s income (the parent ordered to pay child support) to calculate the child support obligation.

In Texas, courts take a flat percentage of the obligor parent’s income as the child support amount. That flat percentage is based on the total number of children for which the obligor parent is providing support. The guidelines look like this:

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TX high asset divorce lawyerPaying alimony or maintenance after a Texas high asset divorce can cost tens of thousands of dollars for high earners. Yet there may be options available to parties in a high net worth divorce to limit the amount of taxes paid on alimony. Once you know that your spouse is entitled to receive maintenance under Texas law, you will likely be wondering whether there are ways to limit the amount of taxes that you will pay on those alimony payments. Indeed, since the payor spouse is responsible for taxes on the maintenance payments, those taxes can be significant.

While a court order for maintenance does not provide options for minimizing maintenance taxes in a high net worth divorce in Texas, entering into a marital settlement agreement with your spouse in which you provide an alternate form of compensation in lieu of maintenance payments could allow you to minimize taxes substantially. There are certain methods for reducing or minimizing alimony taxes for the wealthy, discussed below.

Minimizing Taxes on Maintenance in Austin, TX

Texas law caps maintenance payments at $5,000 per month, Yet even taxes on payments of $5,000 are probably more than you would like to pay. As we said above, there may be options to reduce the total amount of taxes you will pay. Options that may be available include but are not limited to the following:

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