Photo by Dr. John Bullas
When you’re going through a divorce you have a million things to think about, and probably the last thing you want to spend time on is taxes. But it’s important to think about them early, rather than later—here’s why.
As an enrolled agent, I usually don’t get to talk to men going through a divorce unless they’re already a client. Instead, I see is what happens to divorced men at tax time after it’s too late for me to fix things. Here’s the basic problem: a guy is going through a divorce. He goes to his attorney and hands over his pay stubs so that a fair and reasonable amount can be determined for child support.
The child support is based upon the breadwinner’s take home pay. This is where the problem is. Up until the divorce, the man generally has been filing his tax returns as “married filing jointly”; which has a lower tax rate than “single.” If he has children there are the exemptions for the kids which reduced his tax. Of course the exemption for the wife will be eliminated with the divorce too. If he owned a home then there were itemized deductions and tax advantages that he’ll lose as well. Bottom line: getting a divorce will increase a breadwinner’s income taxes.
For example: Let’s say John is going through a divorce. He makes $4,000 a month and brings his pay stubs to his attorney to determine the child support payment. Currently, John’s withholding is based on 4 exemptions; one for him, two for his kids, and an extra one because of his deductions. In this case, his federal withholding would be $248 per month. But the reality of the situation is that after the divorce, John will be single and filing as single with probably no exemptions on his tax return. He should be withholding $561 per month instead, that’s a difference of over $300.
This creates a double whammy. First, the child support is set based upon John’s take home pay which right now looks like it’s $300 a month more than it really should be – so John winds up paying more in child support then he can really afford. Then, when tax time comes around, John wasn’t withholding enough and now he has a tax debt of $3600 that he never expected and can’t afford to pay because all of his extra money is going to his child support.
Remember, paying child support does not count as a tax deduction.
So what does John do next? He goes to his attorney and pays the attorney to renegotiate the child support payment. This costs him even more money and ticks off the ex-wife (who wasn’t too pleasant to begin with-that’s why she’s the “ex” wife.) So now he’s got a tax debt, attorney fees, an angry ex-wife, and in the meantime, he’s racking up another IRS bill because he can’t afford to change his withholding if he wants to make those child support payments.
Now a really good attorney recognizes this problem and would have John change his withholding before he ever went to court. But from my end, I’ve seen too many cases where this wasn’t done. So if you’re going through a divorce, you need to be the one to make sure that you’re protected. Plan out what your tax situation will be as a single man and prepare for it up front. Hire help if you need it, it will be money wisely spent.