Picking Up the Pieces: Navigating the Tax Bill Post-Divorce
As I sit down with clients in the wake of a divorce, one of the most daunting topics we encounter is the specter of shared tax liabilities. It's a common – but often unexpected – hurdle that many newly divorced women face, and navigating it requires a blend of emotional resilience and financial acuity.
The dissolution of a marriage not only signals an emotional turning point but also marks a crucial financial transition. When the decree is finalized, and the dust begins to settle, you may find yourself with a shared tax bill— a remnant of a financial life you once planned together. Handling this responsibility can be overwhelming, but it's crucial to address it with both urgency and strategy.
Understanding Your Tax Liability
The first step is to gain a clear understanding of your liability. In many cases, both parties are jointly responsible for any taxes owed on income earned during the marriage. This is known as joint and several liabilities. Even if your divorce decree states that your former spouse is responsible for past tax debt, the IRS may still hold you accountable if those taxes go unpaid.
Here at Green Financial Group, we work closely with our clients to analyze any notices from the IRS, clarifying your portion of the liability and formulating a payment approach that minimizes stress on your finances.
Seeking Professional Assistance
Confronting a tax bill can be complex, and the nuances of tax law require a professional's guidance. It's advisable to work with a Certified Public Accountant (CPA) or a tax attorney who has experience in handling post-divorce tax issues. They can help you navigate the intricacies of your liability and may even find areas where you can reduce what you owe.
A financial planner can also be an integral part of your advisory team. Together, we can review the impact of the tax liability on your overall financial health and adjust your financial plans accordingly. For instance, we might need to revisit your investment strategies or budgeting plans to accommodate the tax payment schedule.
Strategizing Payment and Protection
Once you have a clear understanding of your tax liability, you will need to develop a plan to manage and eventually extinguish this debt. This might involve setting up an installment agreement with the IRS to pay off the balance over time. In some cases, if paying the full amount is not possible, you could qualify for an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed.
Simultaneously, it's critical to protect yourself from future liabilities. This includes adjusting your tax withholdings or estimated tax payments to reflect your new status as a single filer. This can help prevent a surprise tax bill in subsequent years.
Embracing Your Financial Independence
The reality of addressing a shared tax liability post-divorce is undeniably challenging, yet it presents a powerful opportunity for personal and financial growth. At Green Financial Group, we are committed to turning this challenge into a stepping stone towards your financial autonomy.
We understand that every woman’s situation is unique, and as your financial planners, we’re dedicated to crafting a personalized strategy that reflects your specific needs and objectives. With the right support and resources, we believe you can emerge from this experience with a stronger, more confident grasp on your finances.
As you embark on this new chapter, know that we are here to guide you through every financial hurdle and decision. Together, we can navigate the complexities of post-divorce tax liabilities and lay the groundwork for a future where you feel in control of your financial destiny.
For any woman navigating the aftermath of a divorce, consider this an invitation to connect with us. Let’s discuss how we can support you through this time and beyond, helping you to pick up the pieces and build a solid, secure financial foundation for the next stage of your life.
Please Note: Any opinions are those of Lauren Smith and not necessarily those Raymond James Financial Services, Inc., or of Raymond James. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.
