Divorce and Taxes: Four Things to Consider and Why You May Need an Accountant to Help

Posted on: 6 April 2015

Getting divorced can be hard emotionally and financially, and when tax time rolls around, your divorce may complicate your taxes. Wondering how your divorce may affect your taxes? Take a look at these four elements:

1. Claiming the Family Tax Benefit

The Family Tax Benefit is a cash, income-based benefit that helps with the cost of raising children. In order to claim this benefit, your child must be living with you at least 35 percent of the time.

However, if you are divorced and you both have 50 percent custody, you cannot each claim this benefit. Instead, you will need to decide together who gets this benefit—if you can't decide, no one can take it, but an accountant can help you determine which partner should claim the benefit.

2. Understanding Spousal Maintenance

If one partner has to pay the other partner child support or spousal maintenance, those payments come out of the payer's post-tax income. Additionally, the receiver does not have to declare those payments as income on his or her tax return.

3. Avoiding Capital Gains Taxes on Property Sales

One of the biggest potential tax traps when you are dividing up the assets from a divorce is capital gains tax. However, there are ways to avoid capital gains taxes on assets acquired through your divorce. For example, if you take your family home during your divorce and you sell it, you do not have to pay capital gains tax on it as long as it is your primary residence at the time of the sale.

However, if you assume ownership of the home, rent it out, buy another home and then sell your marital home, that home no longer enjoys the primary home exemption. In this case, you have to pay the capital gains tax on any profit you make when selling your home.

If you own two homes before your divorce, you would have to pay capital gains tax if you sold one of them while married. However, if each partner takes one house in the divorce, each house becomes that partner's primary residence, and as a result, you don't face capital gains if you sell those homes while they are still your primary residence.

4. Splitting the Superannuation Fund

If you decide to split your superannuation fund during a divorce, there are also tax implications with that. An accountant can help you transfer the funds, figure out the complicated tax implications and more.

Some of the other tax-related issue you may need to deal with through your divorce include splitting up the family business and dealing with the exchange of other assets (stocks, bonds, vehicles, etc.). If you have questions before, during or after your divorce, contact an accountant (like those at Luka Group Accountants & Advisors) to help you.