Divorce can be a complex process at any age. As an older couple, your tax consequences can be significant. As your retirement accounts grow, your assets accumulate over the decades of your marriage. Understanding how divorce will affect your financial future becomes crucial.
How will your filing status change?
When you divorce, your tax filing status will shift from married to single or head of household, impacting your tax bracket and potentially increasing your tax liability. New Hampshire, which doesn’t have a state income tax, focuses primarily on federal taxes. Your standard deduction will decrease, and you may lose certain tax credits available to married couples. Also, if your divorce was after 2018, your alimony payments will no longer be tax-deductible. Understanding these changes helps you plan for any financial adjustments you may need post-divorce.
What are the capital gains tax implications?
Dividing assets in a divorce often involves selling property, which can trigger capital gains taxes. In New Hampshire:
- The main home exclusion permits single filers to exempt up to $250,000 of profit, while married couples can exempt up to half a million.
- Transferring assets between spouses in a divorce settlement is generally not taxable
- Careful planning is essential to minimize tax burdens when liquidating investments or real estate
With an idea of these implications, you can strategize the division and potential sale of assets to minimize tax burdens.
How can divorce affect your social security benefits?
Divorce can impact your Social Security benefits, especially if you’re near or at retirement age. You may be eligible for your ex-spouse’s benefits if married for at least 10 years. You can claim benefits on your ex-spouse’s record, which will not reduce their benefits. However, you must note that when you remarry, your eligibility for ex-spouse benefits generally ends.
How can you protect your financial future?
Divorcing later in life brings unique challenges, especially with taxes and retirement planning. Work with an attorney to understand your options. They can work with financial advisors to create a strategy that reduces tax impacts and protects your long-term financial interests during this significant life change.
