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Taxes and divorce negotiations

On Behalf of | Aug 31, 2021 | Divorce

As some South Carolina couples begin the divorce process, they might find that taxes and tax credits can become a bargaining tool during their negotiations. With taxes and tax credits potentially having a serious impact on finances, it is important to understand the implications.

Taxes can affect the long term value of property

During the division of property in a divorce, the value of each property is important in negotiating a fair and balanced settlement. However, it is also important to look at the tax implications that can come later. Some of the additional tax implications related to property include:

  • Transferring money from some retirement accounts
  • Withdrawing money from retirement accounts too early
  • Paying taxes for the increased valuation of certain investments
  • Paying taxes when selling real estate property

Tax credits can become a point of contention

Tax credits such as the enhanced child tax credit can be a source of contention between divorcing parents as the amount of money a parent can expect from the credits can be substantial. As part of their agreement, some parents might negotiate which parent will claim the credit. In some cases, the lower-earning parent will claim the credit while other couples might agree to have the higher-earning parent claim it. Still, other parents might decide that the fairest way is to switch each year.

While the credit requires that children live with the parent claiming it at least half the year and that that parent should also cover at least half of the child’s expenses, parents can come to a different agreement and fill out the correct form with their tax return. Being informed about tax implications and tax credit rules is important before going into divorce settlement negotiations.