Are Divorce Legal Fees Tax Deductible, asbestosdefinition.com | Are divorce legal fees tax deductible? That’s a question many people ask when faced with the prospect of incurring extensive legal expenses in trying to complete a divorce. Unfortunately, not all divorces are held to the same legal standards as other divorces, and the fact that both spouses have been legally separated for some time can make it even more difficult to determine the extent of the costs involved.
The cost breakdown may be less simple than it seems at first glance. If a spouse is entitled to file a prenuptial agreement or postnuptial agreement, the amount of income and assets, including real estate, cars, and retirement accounts, that must be presented for review may be less than if one spouse was not. If one spouse has a substantial amount of assets from years of previous earnings, those assets may be deducted without meeting the standard “bargaining skills” test or any other requirements laid out by the court.
Divorce Legal Fees – Are Divorce Legal Fees Tax Deductible?
The truth is that when faced with a complicated divorce case, the best way to determine if your divorce legal fees are being charged for in a manner that is in compliance with state law is to consult with an attorney who specializes in divorce. Even if your case is free of issues of property division, division of assets, child custody, or spousal support, the cost of hiring an attorney may still be factored into the total cost of the divorce. It is also important to keep in mind that the law may also allow for some deductions for the costs of mediation fees, unless these expenses are charged against the expenses of the other spouse.
If a partner has access to marital assets, that spouse may be able to keep some of the money without paying taxes on it. However, tax breaks on marital income can be extremely limited.
If the spouses come to an agreement on the division of marital assets and income, the time spent negotiating the terms may actually result in a greater amount of money being distributed to each spouse than would have been agreed upon by the parties’ attorneys. In such cases, if either spouse is able to file a prenuptial agreement to obtain full tax deductions on any property owned by the other spouse prior to the marriage, that may be a good reason to do so.
Once again, the law may not allow for the deduction of any marital assets that were created during the marriage, no matter how large or how small. The only exception to this rule might be for a home that the wife’s parents had used as her primary residence prior to the marriage. As long as the home was shared with the husband, there is little or no taxable value.
If a court order can be produced during the course of the divorce proceeding, the exemption laws may allow for more tax benefits. This is usually the case if the judge finds that the non-custodial spouse was the main source of the filing party’s income and assets. Such an order, along with the income and assets of the husband, would likely be sufficient to meet the standard requirements for tax-free assets for each spouse.
When couples decide to use tax shelter benefits in order to protect assets after their divorce, many people find themselves in a difficult situation as to whether or not to pay taxes on the gains. If one spouse is able to claim that a given asset, such as stock or real estate, was inherited, and one spouse is able to document that inheritance, the value of the asset and its value during the marriage will be tax exempt during the marriage.
These are often called “deemed dividends,” and they provide each spouse with tax exemption status. It is important to note that one spouse must have owned the asset prior to the marriage to qualify for the deeded status, and it is not a full tax exemption unless and until one spouse decides to use the deeded status.
Before a spouse can use tax shelter benefits in a dissolution, it is crucial to determine if the spouse whose taxes are being paid can claim the deeded status. If this is the case, the total amount of property and income that can be claimed for tax purposes during the marriage, after all of the assets have been taken into account, will determine if the divorce is deemed to be a “minor” divorce or a “major” divorce.