Many New Jersey residents are busy now that tax season is upon us. Those who are planning to divorce in 2013 may want to speak to their family law attorneys and tax accountants about the tax implications of divorce, paying specific attention to the potential effects of the American Taxpayer Relief Act.

Many wealthy New Jersey residents will experience tax increases due to the new federal tax law, but even those of modest means should be prepared to keep taxes in mind during divorce settlement negotiations.

Alimony is one issue that can have a significant effect on one’s tax liability. Those who pay alimony can deduct it, and those who receive alimony must report it as income. Thus, in cases where receiving alimony would push someone into a higher tax bracket, he or she may be wise to receive an asset or another means of support in lieu of alimony that would have a lesser effect on taxes. By the same token, some may wish to include alimony in a divorce settlement in order to lower their reportable income.

Contrarily, child support is neither deductible by the payer nor reportable by the payee.

Another item of concern would be an investment portfolio. Capital gains, dividends and other forms of investment income over a certain amount will now be subject to a new Medicare surtax.

Of course, assets such as the marital home, rental or other properties, business interests and savings accounts also all come with their own tax intricacies.

In conclusion, tax implications are one reason that it is generally not wise to divide a marital estate 50/50. In New Jersey, the law provides for an equitable distribution of assets and debts, and in order to achieve this it is necessary to consider taxes in addition to a number of factors. Skilled divorce attorneys will often call on appraisers and accountants to ensure that one’s interests are protected and a fair settlement is reached.

Source: The Wall Street Journal, “New Tax Rules Complicate Divorce,” Arden Dale, Jan. 31, 2013

• Our law firm in Kingston, New Jersey, helps people divide assets and debts during divorce in order to protect their long-term financial needs and goals. To learn more about this process, please visit our Property Division page.