Division of Tax Benefits in Divorce
Divorce Attorneys are usually experts at dividing other types of assets but tax benefits are often overlooked. There is value in current and future tax benefits and these items should be considered as part of a divorce property settlement. Most people immediately think of the division of the dependent exemptions in a divorce but here are some additional deductions, allocations, credit and tax benefits.
Allocate earnings from income producing assets based on the ownership of those assets. If left unaddressed, each will be responsible for 50% of the income.
The following child related credits are valuable and should not be overlooked:
Exclusion from Dependent Care Benefits as listed on the W-2
These credits can only be obtained by meeting the requirements of each credit. These cannot be assigned by divorce agreement.
The agreement should clearly establish which party is entitled to the mortgage interest and property tax deductions. In a divorce the property is treated as if owned by tenants in common, meaning the person who pays the mortgage interest or property taxes in entitled to the deduction.
Net operating losses and capital loss carryovers should be allocated based on each person’s share of the NOL or capital loss.
The agreement should clearing establish the allocation of any un-received federal or state refunds. The document should also state who is responsible for any balance owed and in what proportion.