Illinois Divorce and Taxes: What You Need to Know Before You Sign on the Dotted Line

 Posted on March 20, 2023 in Illinois Divorce

Divorce can be a difficult and stressful process, and the last thing you want is to be hit with unexpected tax obligations after the fact. If you are going through a divorce, considering your decisions’ tax implications before finalizing a settlement is essential.

Below are some key tax issues that arise during an Illinois divorce and offer tips for minimizing tax obligations.

Tax Implications of Divorce in Illinois

Divorce can have significant tax implications, particularly regarding property division, alimony, and child support.

Here is an example to put this into perspective. Under current Illinois laws, spousal maintenance payments are not tax deductible for either the payer or the recipient. This means that the payer will bear the full tax burden of these payments, which may lead to them seeking a lower maintenance payment amount. Without the benefit of a tax deduction, paying spousal maintenance can be a significant financial burden.

Minimizing Tax Obligations in Illinois Divorce

You can use several strategies to minimize your tax obligations during an Illinois divorce. For example, you may be able to offset capital gains taxes by selling other assets that have lost value. You may also be able to negotiate a settlement that allows you to take advantage of tax deductions or credits. Working with a skilled divorce attorney who understands tax issues can help you identify these opportunities and make informed decisions.

Illinois Divorce and Real Estate Taxes

Real estate taxes can be a significant concern during an Illinois divorce, particularly if you own a home or other property. It is important to determine the property’s value and allocate it appropriately between spouses. You may need to pay capital gains taxes if you sell the property as part of the divorce settlement. According to Illinois law, married couples who file jointly can exclude up to $500,000 in capital gains from taxation, while single filers can exclude up to $250,000. However, there are strategies you can use to minimize these taxes, such as selling the property at a loss or taking advantage of tax exemptions for primary residences.

Illinois Divorce and Retirement Accounts

Dividing retirement accounts can also have significant tax implications during an Illinois divorce. It is important to determine the value of the accounts and allocate them appropriately between spouses. If you withdraw funds from a retirement account before age 59 ½, you may be subject to a 10% penalty in addition to regular income taxes. However, you can use strategies to avoid or minimize these taxes, such as using a Qualified Domestic Relations Order (QDRO) to transfer funds directly from one account to another.

Working with an Illinois Divorce Attorney

If you’re going through a divorce in Illinois, working with an experienced divorce attorney who understands tax issues is in your best interest. An attorney can help you identify tax-saving opportunities and negotiate a fair settlement that considers the long-term tax implications of your decisions.

Contact a Kane County Family Law Attorney Today

Divorce is never easy, but understanding the tax implications of your decisions can help you avoid unpleasant surprises down the road. As you begin your journey with a divorce in Illinois, take the time to consider the tax implications of your settlement before finalizing it. A St. Charles divorce lawyer can help guide you through the necessary steps. Call Weiler & Associates, Inc. at 630-331-9110 for a confidential consultation.

Sources:

https://www.irs.gov/pub/irs-pdf/p504.pdf

https://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=2086&ChapterID=59