Divorce can bring about many financial changes, including tax consequences. It’s important to understand the tax implications of a divorce settlement in Georgia to make informed decisions during the process. Different aspects of the settlement, such as alimony, property division, and child support, can affect your tax situation.
Alimony and taxes
In Georgia, alimony payments used to be deductible for the paying spouse and taxable to the receiving spouse. However, since the Tax Cuts and Jobs Act of 2017, alimony is no longer tax-deductible for the payer nor taxable to the recipient. This change applies to divorce agreements finalized after December 31, 2018. For divorces finalized before this date, the old rules may still apply.
Property division and taxes
When dividing property during a divorce, most transfers of assets are not taxable. For instance, when one spouse receives a share of the marital home or retirement accounts, they do not owe taxes at the time of the transfer. However, taxes may apply when these assets are sold or cashed out in the future. The spouse receiving the property may be responsible for capital gains taxes when selling assets, such as a home or investment accounts, depending on the appreciation in value since the marriage.
Child support and taxes
Child support payments are not taxable for the recipient and cannot be deducted by the paying spouse. Unlike alimony, child support is not considered income for the receiving parent, so it does not affect their tax return.
Other tax considerations
Divorce can also impact filing status, exemptions, and deductions. If a couple shares children, the custodial parent generally claims the children as dependents on their tax return. A divorce agreement may specify who claims the children, which can affect tax credits like the Child Tax Credit.
Understanding these tax implications can help individuals make smarter financial choices during a divorce settlement in Georgia.
