Most people who decide to get divorced in Georgia understand that they will have to divide the property that they have accumulated during their marriages. However, many of them do not give much thought to the potential tax implications of dividing their property. Understanding the types of taxes that might be imposed when taking different types of assets is important to ensure that the property division process will be more equitable.
Dividing retirement accounts
There are several pitfalls to avoid when dividing retirement accounts. People who have not reached the age of 59 1/2 and those who will receive money from retirement accounts need to make sure that the distributions are made with qualified domestic relations orders. If a QDRO is not used, the IRS can impose early withdrawal penalties on the account holder who withdraws the money. Taxes may also be imposed for accounts for which the contributions were made on a pre-tax basis.
People who have Roth IRAs and traditional IRAs should also be aware of how these accounts are taxed. Contributions to traditional IRAs are not taxed until they are distributed. Contributions to Roth IRAs are taxed at the time that the contributions are made. This means that someone taking a traditional IRA will have to pay taxes when the distributions are made, but a person taking a Roth IRA will not be taxed on the distributions.
Dependency exemption and child tax credits
The Tax Cuts and Jobs Act removed the dependency exemption in 2018, but the exemption is scheduled to return in 2026. This allows a person to claim a child and exempt $4,000 from his or her income. The parent claiming the dependency exemption is also the parent who can claim certain child tax credits, including the additional child tax credit, the child care credit, and the earned income credit. Parents should be careful about their agreements for those who will be allowed to claim the children.
Getting divorced can result in tax consequences that could cost thousands of dollars. People may want to consult with experienced divorce and family law attorneys for help with determining how their property should be divided to minimize the taxes that they might be forced to pay.