One of the most difficult factors involved in the termination of a marriage is property division. Distributing marital property and assets that have been accumulated throughout years of marriage can often seem overwhelming, as people may develop emotional ties to their things. There are, however, some important factors to keep in mind when determining who gets what in the final divorce settlement. One of these issues involves taxes, and how division of property may affect a person’s taxes. If people do not plan properly, they may be surprised with unexpected tax consequences that could have a major impact on their finances.
Property should be distributed in such a way that minimizes the tax burden on both parties, and avoids gift tax liability or taxable gain. Any property transferred to a former spouse within one year after the marriage has ended will not cause gain or loss to either party.
Couples may also want to consider how they are going to file their income taxes for the year. Will it be most beneficial for the couple to file as married or as separate? This depends on how much money each person makes, and whether his or her income will push them into the next tax bracket. People should keep in mind that if they file as married, they are both responsible for any taxes owed.
Also, when filing taxes, couples should consider who is going to claim the children as a tax exemption. If there are two children, parents may want to each take a child. If there is one child, parents can switch years in which they are able to claim them.