When a Massachusetts couple over the age of 50 makes the decision to end a marriage, the issues they face are often very different from a couple in their 20s or 30s. As we approach retirement, our financial goals change, and financial planning becomes a more pressing need. As a result, baby boomers who are calling it quits should take the time to ensure that they are adequately prepared for the tax consequences and other financial repercussions of divorce.
Tax concerns are usually a primary concern for divorcing spouses. Couples who have been together for a long time have grown accustomed to their tax burden, and have effectively planned around that expense. Divorce can bring drastic changes to each spouse’s tax obligations, however, and should be planned for before the divorce settlement has been reached.
For example, the decision to keep or sell the family home has significant tax ramifications. If one spouse plans to remain in the home, he or she will take on the costs of maintaining the property, but will also get the tax deductions associated with home ownership. The spouse who walks away from the property may have a lower monthly living expense, but will also lose all homeownership tax deductions.
Another consideration involves cases in which the couple decides to sell the home. Selling a home in a year that the owner can still file as married can make a great deal of difference in the bottom line, as the current tax code allows for up to $500,000 in capital gains exclusions. That figure is only $250,000 for a single filer.
As these examples demonstrate, the timing of one’s divorce can have a significant effect on one’s tax consequences. In addition, moving from married to single will lead to other changes in one’s tax scenario. These matters should be handled at the onset of a divorce, when proper planning can help offset any losses and maximize the gain for both Massachusetts spouses.
Source: foxbusiness.com, “Financial Planning for Newly-Single Boomers,” Casey Dowd, Feb. 14, 2013