Maryland residents who are recently separated from their spouses should consult with a professional before making any big financial changes, as there are several tax implications to consider when assets are divided. For instance, it may be a good idea for some ex-partners to wait to finalize their divorce until after they sell their marital home, as they may get better tax treatment than they would if they were single.
Retirement funds are a particularly tricky subject, since not all retirement accounts are treated equally. For instance, if one spouse transfers IRAs to another in a divorce, this would not be a taxable event. For other types of retirement plans, individuals may need a qualified domestic relations order in order to avoid tax issues.
Spouses with children should speak with a family law attorney who is cognizant of changes in the tax law. Though couples getting divorced prior to Jan. 1, 2019 could take dependent children as an exemption, this is no longer allowed under the Tax Cuts and Jobs Act. However, if a divorce takes a while to finalize, one silver lining is that parents may be able to take more in tax credits for their children if they file married filing separately.
One other negative implication of the Tax Cuts and Jobs Act is that divorcing individuals can no longer get a tax deduction for legal fees incurred in seeking tax advice. Fortunately, there are other ways that people can get a tax break on the legal services they pay for when going through a divorce, such as if the service provided was the negotiation of a property settlement. Working with a financial planner and a family law attorney at the outset of a divorce can save a lot of time and money further down the line.