WTOP Interview: How To Navigate Your Taxes After A Divorce
Hillary Howard: You know people navigate many challenges in life when transitioning from being married to becoming single again after a divorce. One of the biggest and sometimes most overlooked changes are in the area of taxes.
Shawn Anderson: Joining us to talk about post-divorce tax changes, Dawn Doebler; Senior Wealth Advisor at Bridgewater Wealth in Bethesda and cofounder of Her Wealth, good to have you back Dawn. Thanks so much. Taxes are already complicated no matter where you are in life, so how can divorcees know what changes that they will need to make to make their taxes work because their marriage didn’t?
Dawn Doebler: Right, as you said Sean taxes are complicated. I think when most women think about taxes they frankly want to run the other direction. What I want to talk about today is the fact that the lives changes that you’re making as a result of divorce often times have a tax impacts and many times very significant impacts. So we have an article that goes into a lot of detail, but the most important thing for women to remember is that if there’s a big life change happening likely there’s a tax impact to that.
Hillary Howard: Are there any changes that are simple to make for women?
Dawn Doebler: Yes, actually the simplest tax change that happens as a result of divorce is a change in your filing status. When you’re in the middle of the divorce usually you will still be filing jointly with your spouse and we’re actually to talk about some of the challenges of that next week so I’ll leave that till then. But once you are officially divorced you have only two choices, you can file single or head of household and what determines that is that for head of household you have to have dependent children who live in your home and your home is their primary residence, so that’s an example of how a change in your life situation results in a tax change.
Shawn Anderson: So if someone is getting alimony or getting child support, how does that affect taxes?
Dawn Doebler: You know the amount of taxes that you’re responsible to pay is based on your total income. So most often at Her Wealth we see women who are beginning to receive alimony. The difference in alimony versus income that you receive from a job is that there is no withholding. Most often if you’re beginning to receive alimony, you have higher income and you will need to make estimated tax payments quarterly, usually you’ll need help calculating what those amounts are and you may need help filing those estimates.
Hillary Howard: So, one of the very difficult things emotionally of course is splitting up property, but there could some financial repercussions too, can you feel us out on that?
Dawn Doebler: It is important to pay attention to the assets that you’re getting on divorce. If you’re receiving retirement assets you have to be careful about the way those are transferred to make sure that the transfers are tax-free. If you’re receiving taxable assets like securities from a joint account, you want to make sure that you’re getting the asset as well as the cost basis, there is more information about that in our article, but that’s a very important part. And thirdly I want to suggest you should always ask your advisors what is the tax impact of this change, you may work with an advisor who will rebalance your portfolio or who will sell you a product and it’s your responsibility to ask whether the tax impacts public transaction.
Shawn Anderson: Wow! Plenty of information there thanks Dawn.
Hillary Howard: Thanks.
Shawn Anderson: Dawn Doebler with Bridgewater Wealth in Bethesda. And for more divorce finance tips, she writes more about it on WTOP.com/search Her Wealth.