Separation agreements are legal documents that outline the terms of a separation or divorce. These agreements can cover a wide range of issues, including child custody and support, property division, and spousal support. In New York, taxes are an important consideration in separation agreements. In this blog post, we will discuss the role of taxes in New York separation agreements and provide some tips for negotiating a fair agreement
One of the most important tax considerations in separation agreements is the tax implications of spousal support. Spousal support, also known as alimony, is payments made by one spouse to the other to support
them after the separation or divorce. In New York, spousal support payments are tax-deductible for the paying spouse and taxable income for the receiving spouse. This means that the paying spouse can deduct the spousal support payments from their taxable income, which can result in significant tax savings.
Another important tax consideration in separation agreements is the division of assets. When a property is divided in a separation or divorce, there may be tax consequences for both parties. For example, if a couple sells a jointly-owned property, they may have to pay capital gains taxes on any profit they make from the sale. If one spouse keeps a retirement account, they may have to pay taxes on any withdrawals they make from the account in the future.
In addition to spousal support and property division, taxes can also come into play when it comes to child support. In New York, child support payments are not tax-deductible for the paying spouse and are not considered taxable income for the receiving spouse. This means that child support payments do not have a significant impact on either party’s taxes.
When negotiating a separation agreement, it is important to consider the tax implications of each provision. It is also a good idea to consult with a tax professional to ensure that the agreement is structured in a way that minimizes tax liability for both parties. Here are some tips for negotiating a fair separation agreement:
- Work with an experienced attorney who has experience in drafting separation agreements and can provide guidance on tax implications.
- Be transparent about your finances and assets. This will help ensure that the agreement is fair and equitable.
- Consider the tax implications of spousal support payments, property division, and other provisions in the agreement.
- Consult with a tax professional to ensure that the agreement is structured in a way that minimizes tax liability for both parties.
- Consider including a provision in the agreement that addresses any future tax liability that may arise.
Another important consideration in New York separation agreements is the allocation of child tax credits. Under federal law, the parent who has primary custody of a child is entitled to claim the child tax credit on their tax return. However, parents can agree to allocate the credit differently in their separation agreement. For example, they may agree to alternate claiming the credit each year or split the credit between them.
It is important to note that tax laws and regulations can change over time, and the tax implications of separation agreements may also change as a result. For example, in 2018, federal tax laws changed to eliminate the tax deduction for spousal support payments, which can have a significant impact on the tax liability of both parties. It is important to stay up-to-date on any changes in tax laws and regulations that may impact your separation agreement.
As a team, at Michael D. Schmitt, ESQ. we can provide valuable assistance with The Role of Taxes in New York Separation Agreements cases. We can guide clients on the tax implications of different provisions in a separation agreement, negotiate fair agreements, and draft comprehensive agreements that address all relevant tax considerations. We can also provide ongoing support to clients who are navigating the separation or divorce process, helping them with any issues that arise related to taxes and separation agreements, and providing guidance on how to modify agreements if necessary. With our experience and expertise, we can ensure that our clients receive a fair and equitable agreement that minimizes their tax liability.