Here are the biggest issues with taxes and divorce in Connecticut.
1. Filing status. If you are still married on December 31, you can file joint returns. When a divorce settlement is reached in November or December lawyers often ask the judge to approve the agreement in January for this reason.
2. Dependents. If the children lived with you for more than half the year, you are entitled to this credit per IRS Regulations. But depending on income of both parents and the number of children who qualify it sometimes makes sense to negotiate this issue. The custodial parent can execute Form 8332 allowing the other parent to claim a child.
3. Alimony. Income to the receiving party and a deduction to the paying party. Take this into account when calculating the appropriate amount of alimony.
4. Child support. Unlike alimony, it is not income to the parent receiving or a “write off” to the parent paying. It is tax neutral.
5. Retirement plan withdrawals. Draft a Qualified Domestics Relations Order to avoid early withdrawal penalties and tax consequences.
6. House sales. Joint filers have a tax shelter up to $500,000 – single filers only $250,000. Therefore, you should consider the sale of the marital home and the timing of the divorce accordingly.
7. Payment of mortgage interest. The owner of the property claims the deduction regardless of who is paying the mortgage or living in the residence. If both parties own the house, then you split the deduction.
Other tax issues may occur depending on the complexity of the case. But at least, be aware of these principles as you navigate through a Connecticut divorce.