Divorce and Taxes
Divorce and taxes should go hand-in-hand like peanut butter and jelly. Well, not exactly like that but, tax issues should be addressed during divorce negotiations. If they are not, you could end up with a surprise tax bill in April 2016.
For example, if you think your divorce will be final in 2015, you should consider having your withholding changed from married filing jointly to single or head of household now. If you get divorced in 2015, the IRS will assume you have been divorced the whole year regardless in you are divorced in February, July or December. This means if your divorce is final in 2015 and you wait to change your withholding to single or head of household when the divorce is final, you will have under withheld taxes since January. You'll then likely get a tax bill in April 2016 and have to pay that bill from your separate funds rather than from joint funds (while you were married and before the settlement was final).
Other common tax issues that should be discussed during negotiations include who will pay the taxes when stock options are cashed, who will take the exemption for the children and the deduction for the mortgage interest and real estate taxes if the marital home is sold as part of the settlement.
It is important to consult a financial professional well versed in the financial and tax issues that are unique to divorce during your divorce process. Otherwise, you may end up with a not so wonderful surprise next April… Personally, I prefer surprises to be wrapped with wrapping paper and a bow, not delivered from the federal government…