Insight

Clients Should Understand Basic Financial Consequences of a Divorce

Spouses who get divorced will have to adjust how they file their taxes, what income and liabilities they must report for tax purposes, and even how they approach discussions about alimony and spousal support.

Divorce Finances
SF

Steven Fernandez

October 10, 2017 11:25 AM

A divorce can be a complicated process. All too often, clients are focused on getting “more” out of the divorce than their spouse. This can cloud judgment and make it difficult to achieve a successful and meaningful resolution in a divorce. It is important to talk with clients about the tax and financial consequences of a divorce. Clients should be aware of how “getting more” in the divorce could ultimately be problematic. As family law and divorce lawyers, it is our responsibility to make sure that clients approach divorce discussions with as much information as possible.

Taxes aren’t the most exciting topic of discussion.

However, tax implications are inherently intertwined in a divorce proceeding. Spouses who get divorced will have to adjust how they file their taxes, what income and liabilities they must report for tax purposes, and even how they approach discussions about alimony and spousal support.

Clients will often be guided and driven by emotion. It is important to insert some objective considerations into the equation.

The Ability to Claim Dependents

Spouses will likely have to change their tax return filing status in the future. This, of course, will depend on whether the spouses remarry right away and if parents retain the right to claim any children as dependents. The ability to claim dependents on a tax return can be incredibly beneficial. It can allow for additional deductions and credits and can significantly reduce a parent’s tax liability. In some cases, parents can qualify for refunds that may have otherwise been out of the question.

If your client would not necessarily benefit from claiming his/her child on a future income tax return—perhaps because they have a high income or can claim other children from a previous relationship—they may be able to use the deduction as a bargaining chip. While your client may not want to give up the deduction for personal reasons, it may be beneficial to offer future deductions in exchange for receiving another benefit in the divorce. Spouses who understand the underlying financial implications of their decisions may be more likely to approach divorce settlement negotiations with an open mind.

Taxation and Future Financial Consequences of Marital Assets

The way in which property is distributed in a divorce often depends on the state in which the couple resides and whether or not there is a prenuptial agreement. Spouses who want to get divorced should consider how these factors will impact their ability to divide their marital assets.

All but nine states use equitable distribution laws. When a divorce is contested in these states, the court will step in and determine how property should be divided. This allocation will not necessarily be equal. Rather, it will be equitable. The court will consider what is fair and reasonable after considering a number of relevant factors. Spouses who divorce inequitable distribution states could potentially be awarded all of the marital property, none of the marital property, or any percentage in between. When spouses divorce in community property states, each is entitled to half of the community marital property. This division is equal rather than equitable.

Spouses who anticipate that a divorce may not be amicable and want to maintain some control over the division of property can execute a prenuptial agreement. In a prenuptial agreement, spouses pre-determine how property, assets, debts, and liabilities will be divided in a divorce. This can be general (“each spouse shall receive 50 percent of the marital assets and liabilities) or specific (“Spouse A shall get the house; Spouse B shall get the car”). Spouses who execute prenuptial agreements often take the tax consequences of distribution into consideration. It may be wise to discuss a prenuptial agreement with clients who are thinking about getting married or a postnuptial agreement with spouses who are already married.

Spouses who refuse to come to a mutually-agreeable resolution to property division risk leaving important decisions to the court. While most property transfers in a divorce are not taxable, the property that each spouse receives may have its own unique tax consequences. For example, if your client wants to get everything in a divorce and leave his/her spouse with nothing, they must realize that they will be on the hook for payments related to any property they receive. If your client wants the house, it is important to emphasize that he/she will be responsible for property taxes, mortgage payments, and other home-related costs. If your client wants everything, they must also know that they will be responsible for resulting taxes, fees, and expenses as well. Getting “more” can come with a hefty price tag down the line. Since most divorce-related transfers are not taxable, now may be the time to discuss what is best for both spouses in the future, rather than what will be self-satisfying in the moment.

Alimony and Spousal Support

Alimony is generally both included in the recipient spouse’s income and a deductible expense for the payor spouse. Even the discussion of alimony can trigger tense emotions and distress in a divorce. However, it is important to understand the tax implications of alimony and spousal support. These can help to guide conversations and establish appropriate payments. Spouses who will be required to pay alimony may want to establish higher alimony payments in exchange for receiving less marital property. This would allow the spouse the best tax position. The spouse who is entitled to receive alimony may want to receive less in alimony and more in marital assets. Marital assets may not have immediate tax consequences, whereas alimony will have to be included as income. Spouses can use alimony as a device to negotiate the division of property and allocation of dependents.

There are many issues that should be taken into consideration when approaching the division of assets, child custody, and alimony in a divorce. Spouses should understand the tax and financial consequences of any decisions they make in a divorce. These decisions should not be guided by emotion, but rather logical thought and foresight.

---------------------------

Steven Fernandez is an attorney and founder of Fernandez & Karney, a Los Angeles family law firm. Mr. Fernandez is a graduate of University of California – Los Angeles School of Law, is a California certified family law specialist, and has over 27 years’ experience exclusively handling family law matters.

Phone: 310-393-0236
Email: info@cfli.com


Related Articles

The Advantages of Collaborative Divorce for Families


by Best Lawyers

Collaborative divorce is a cooperative alternative to a possibly contentious, court-focused divorce process. Learn more about collaborative divorce here.

Silhouetted figures split down the middle with child in backdrop

Important Considerations in Determining What Is in the Best Interest of a Child


by Hossein Berenji

When courts make determinations about child custody they will make the decision based on what they believe is in the best interest of the child.

Best Interest of a Child

How to File for Divorce


by Natalie R. Rowland

Divorce can be complex in both process and cost. An experienced family law attorney explains how best to file for divorce and outlines considerations to take.

Woman sitting on couch rests head on fist with man in background

Finding the Right Divorce Attorney


by Best Lawyers

Divorce proceedings are inherently a complex legal undertaking. Hiring the right divorce attorney can make all the difference in the outcome of any case.

Person at a computer holding a phone and pen

High-Net-Worth Divorce


by Gretchen S. Knight and Jill Spevack Di Sciullo

Many issues can arise during divorce proceedings, particularly for affluent couples. Outlined below are some of the best practices for the most common concerns.

Spouses standing in doorway of home having argument

IN PARTNERSHIP

Cryptocurrency and Divorce


by Crystal Espinosa Buit

One lawyer explains how cryptocurrency, the fastest growing investment form, can impact assets in a divorce and why it should not be ignored in divorce proceedings.

Pixelated image of paper money bill

Five Tips for Business Owners Facing Divorce


by Brittany A. Brown

When married couples have entered into joint business ventures find themselves facing divorce, it is important that they heed these five steps to ensure amicable resolution.

People standing in opposite circles forming Venn diagram

Filing for Divorce in North Carolina


by Melody J. King

Family law lawyer Melody King answers some of the most important questions individuals may have about filing for divorce in North Carolina.

Illustration of man and woman on paper that has been torn apart

IN PARTNERSHIP

The Parenting Plan


by Derren Ciaglia

Co-parenting considerations should always be taken into account when negotiating Parenting Plans in divorce or paternity matters.

Woman in car looking through window at man hugging child

IN PARTNERSHIP

How to File for Divorce


by Natalie R. Rowland

Divorce can be complex in both process and cost. An experienced family law attorney explains how best to file for divorce and outlines considerations to take.

Image of bride and groom on beach with a split down the middle

Divorce in Florida


by Hugo E. Acebo

A Florida family law lawyer highlights the important steps each party should take when facing the complexities of divorce, particularly when faced with decisions surrounding the children.

Painting of father walking with two children

The Hague Convention and International Custody Battles


by Alexandra Goldstein

One family law lawyer explains how Joe Jonas and Sophie Turner’s celebrity divorce brings The Hague Convention treaty and international child custody battles into the spotlight.

Man and woman celebrities wearing black and standing for photo

IN PARTNERSHIP

How to Find a Good Divorce Lawyer


by Best Lawyers

To navigate a divorce, which is inherently a complex legal landscape, finding the right divorce lawyer can make all the difference in the outcome of any case.

Bride and groom figurines on top of a wedding cake

The Top 7 Things to Know Before Filing for Divorce


by Best Lawyers

Consulting with a qualified divorce attorney can help you understand your rights and obligations when filing for divorce. Here are 7 things you should know.

Two golden wedding rings with a crack down the middle

Split Decisions


by Jonathan Merel

Divorce is inevitably fraught with a torrent of emotions on both sides. Don’t let this occlude your ability to plan rationally and dispassionately to ensure as smooth a process as possible. Here are five common pitfalls to avoid.

Two people standing on either side of a heart made out of curving roads

What If Johnny Depp and Amber Heard Had a Premarital Agreement?


by John M. Goralka

Oh, the gritty details we’re learning from the latest court battle between Johnny Depp and Amber Heard. This unfortunate airing of dirty laundry may have been avoided with a prenup. Should you think about getting one yourself?

What If Johnny Depp & Amber Heard Had Prenup?

Trending Articles

Introducing the 2026 Best Lawyers Awards in Australia, Japan, New Zealand and Singapore


by Jennifer Verta

This year’s awards reflect the strength of the Best Lawyers network and its role in elevating legal talent worldwide.

2026 Best Lawyers Awards in Australia, Japan, New Zealand and Singapore

Revealing the 2026 Best Lawyers Awards in Germany, France, Switzerland and Austria


by Jamilla Tabbara

These honors underscore the reach of the Best Lawyers network and its focus on top legal talent.

map of Germany, France, Switzerland and Austria

Effective Communication: A Conversation with Jefferson Fisher


by Jamilla Tabbara

The power of effective communication beyond the law.

 Image of Jefferson Fisher and Phillip Greer engaged in a conversation about effective communication

The 2025 Legal Outlook Survey Results Are In


by Jennifer Verta

Discover what Best Lawyers honorees see ahead for the legal industry.

Person standing at a crossroads with multiple intersecting paths and a signpost.

The Best Lawyers Network: Global Recognition with Long-term Value


by Jamilla Tabbara

Learn how Best Lawyers' peer-review process helps recognized lawyers attract more clients and referral opportunities.

Lawyers networking

Jefferson Fisher: The Secrets to Influential Legal Marketing


by Jennifer Verta

How lawyers can apply Jefferson Fisher’s communication and marketing strategies to build trust, attract clients and grow their practice.

Portrait of Jefferson Fisher a legal marketing expert

Is Your Law Firm’s Website Driving Clients Away?


by Jamilla Tabbara

Identify key website issues that may be affecting client engagement and retention.

Phone displaying 'This site cannot be reached' message

A Guide to Workers' Compensation Law for 2025 and Beyond


by Bryan Driscoll

A woman with a laptop screen reflected in her glasses

Medical Malpractice Reform Trends in Texas, Utah, Georgia and SC


by Bryan Driscoll

A fresh wave of medical malpractice reform is reshaping the law.

Medical Malpractice Reform Trends hed

Why Jack Dorsey and Elon Musk Want to 'Delete All IP Law'


by Bryan Driscoll

This Isn’t Just a Debate Over How to Pay Creators. It’s a Direct Challenge to Legal Infrastructure.

Elon Musk and Jack Dorsey standing together Infront of the X logo

Best Lawyers Launches CMO Advisory Board


by Jamilla Tabbara

Strategic counsel from legal marketing’s most experienced voices.

Group photo of Best Lawyers CMO Advisory Board members

Changes in California Employment Law for 2025


by Laurie Villanueva

What employers need to know to ensure compliance in the coming year and beyond

A pair of hands holding a checklist featuring a generic profile picture and the state of California

Common Law Firm Landing Page Problems to Address


by Jamilla Tabbara

Identify key issues on law firm landing pages to improve client engagement and conversion.

Laptop showing law firm landing page analytics

New Employment Law Recognizes Extraordinary Stress Is Everyday Reality for NY Lawyers


by Bryan Driscoll

A stressed woman has her head resting on her hands above a laptop

Best Lawyers Introduces Smithy AI


by Jamilla Tabbara

Transforming legal content creation for attorneys and firms.

Start using Smithy AI, a content tool by Best Lawyers

How to Create High-Converting Landing Pages for Your Law Firm


by Jamilla Tabbara

Learn how to create high-converting law firm landing pages that drive client engagement and lead generation.

Laptop screen displaying website tools to improve client conversion rates