Tax Implications of a Rochester, NY Divorce

If you’re in the early stages of a divorce in New York, you likely still have a lot of questions about the process. In addition to figuring out what type of divorce you’re filing and how you’d like to divide your shared assets with your spouse, you may also want to know the tax implications of a Rochester, NY, divorce.

A skilled Rochester divorce attorney can teach you about the nuances of a divorce case in New York, but it’s also helpful to understand for yourself how a divorce can impact your future.

How Is Divorce Defined in Rochester, NY?

A divorce is defined as the legal ending of a marriage by a court order. The state of New York recognizes at-fault and no-fault divorces, which essentially refers to whether you and your spouse are on the same page with the terms of your divorce. As of 2023, New York has had a fairly low divorce rate when compared to other states, with an average of 2.3 divorces per 1,000 inhabitants.

To start a divorce case, you can file a summons and notice with the Monroe County Clerk’s Office and serve your spouse with the official papers. You can do this online or by coming into the office. They’re located right by the Times Square Building, so it should be relatively easy to find them.

Tax Implications of Getting a Divorce in Rochester, NY

When you file for a divorce in New York, there are several tax concerns that you should pay attention to. During fiscal year 2023-2024, the New York tax department collected $103.3 billion from state-imposed taxes and fees, with $53.8 billion being personal income taxes and $3.0 billion being property transfer taxes.

If you’re in the process of filing for divorce, it’s important to understand your finances so you can take care of your assets. Some tax implications to consider include the following:

• • Spousal maintenance. Any form of spousal maintenance is tax-deductible for the payer and taxable income for the recipient. That means if you’re receiving spousal maintenance as an outcome of your divorce settlement, you must report it as income on your tax return each year.
  • Change in financial situation. A divorce can have a significant impact on your financial situation, which affects your income and tax liability. After experiencing such a big change, it’s important to review your finances and ensure you’re paying your taxes properly.
  • Child support. Depending on your circumstances, you may be eligible for tax credits related to childcare expenses to help offset the expenses you pay throughout the year. Child custody and child support arrangements, in general, can also impact your tax benefits significantly.
  • Deductions from divorce. While you are not able to deduct your personal legal fees from your taxes, there are some instances when you can deduct a portion of your legal expenses. It’s important to keep documentation of all the costs you incur and talk to your Rochester divorce attorney about any potential deductions.
  • Health insurance. When you get divorced, there’s a good chance you will experience changes in your health insurance coverage or even lose it altogether. It’s helpful to understand all your options for health insurance if you lost coverage because of the divorce.
  • Property division and capital gains. Under New York’s Equitable Distribution Law, the court must divide all marital property fairly and equitably between the two spouses. When these assets are divided, it can introduce capital gains tax implications.In the city of Rochester, properties are taxed at one of two rates: the homestead rate or the non-homestead rate. The former applies to family residential properties and certain pieces of vacant land. The latter applies to all other types of properties.
    • Retirement accounts and related orders. When you get divorced, you often have to divide any retirement accounts, like 401(k)s and pensions. Spouses can use a Qualified Domestic Relations Order (QDRO) to transfer any funds between them without receiving any penalties or immediate tax liability.

FAQs

Are Divorce Settlements Taxable in Rochester, New York?

New York follows federal laws regarding divorce settlements and tax liability. Typically, divorce settlements in Rochester are not taxable as long as the transfer happens within one year of the marriage ending or no more than six years if it’s a divorce on the grounds of a separation agreement.

What’s the Difference Between an Annulment and a Divorce?

Both annulments and divorces are legal procedures that end marriages. The difference is annulments make a marriage null and void on the grounds that it was never valid in the first place. Divorce, on the other hand, is the legal process of ending a valid marriage. The processes result in different outcomes, so it’s important to do your research on the right avenue for your future.

Does Child Support Count as Income for Taxes in New York?

The amount of child support a spouse pays is calculated by New York’s child support guidelines. Child support payments are not tax-deductible for the payer and are not considered income for the recipient. The IRS treats both child support and spousal maintenance in the same way, but you cannot negotiate the payment amounts to limit tax liability for paying child support.

How Are Capital Gains Taxes Impacted by a Divorce in Rochester, NY?

If you have assets that appreciate in value and come into play during a divorce settlement, you may have to consider the impact they have on your capital gains taxes. This is typically seen with assets like businesses, real estate, and stocks. The court must carefully divide appreciated assets between both spouses to ensure neither party has to deal with unintended tax consequences.

Contact a Rochester Divorce Attorney to Protect Yourself and Your Finances

Going through a divorce is an emotionally charged experience that can make it challenging to focus on the practical and financial aspects of the process. Get in touch with our team at Trotto Law Firm, P.C., to set up an appointment with our Rochester divorce lawyers today.