DivorceGuys: Tax Question (1 Viewer)

[saintfool]

My soon-to-ex and I are finalizing our divorce agreement in the coming weeks. We have joint custody of our son and I'm to be designated as the "primary residential" parent in our decree. She has student loans, a portion of which went above and beyond the direct costs associated with tuition. She is seeking relief for the full amount of the non-tuition (about $20k) and I'm not inclined to pay for it entirely. I am happy to pay child support for our son. That's not up for discussion.

One of the ideas floated would be for me to waive the HOH and dependent exemption every year with my taxes. This would be instead of me paying maintenance or alimony for the amount.

Question: Is it a better play financially for me to just agree to pay maintenance here? I make a lot more money than the ex (like 3 times as much), if it matters. She'll receive 10% net with support.

 

[Zow]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

 

[Abraham]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

 

[Tom Hagen]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

It's about the only advice anyone here can give. The tax benefits of HOH and a dependent exemption are highly dependent on the OP's income. It's almost impossible to give a meaningful answer without a lot more information. In addition there are other potential credits like dependent care credit, child tax credit and earned income credit that may or may not apply.

 

[MC Gas Money]

If you are the primary residential parebt shouldbt she be paying you child support?

 

[Drifter]

No advice - just want to pass condolences (?) to Saintfool. You've discussed the wife in the past but I don't remember any discussion of conflict.

 

[xulf]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

Way better than your input.

 

[Abraham]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

Way better than your input.

I didn't offer any input.

 

[xulf]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

Way better than your input.

I didn't offer any input.

...

 

[Fennis]

Step 1: Gather parts to build a time machine

Step 2: Build time machine

Step 3: Go back a few years

Step 4: Start hiding money

 

[TenTimes]

Step 1: Gather parts to build a time machine

Step 2: Build time machine

Step 3: Go back a few years

Step 4: Start hiding money

Find the money that you already went back in time to hide

 

[saintfool]

If you are the primary residential parebt shouldbt she be paying you child support?

We have joint custody. I make at least 3x her income. I'm going to pay something unless I have sole custody.

 

[Steve Tasker]

I'm gonna be in Chicago the Thursday 1 week before Thanksgiving....keep the schedule open

Also, I agree with everyone saying you need to crunch the numbers. Impossible to give advice without real numbers.

 

[saintfool]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

It's about the only advice anyone here can give. The tax benefits of HOH and a dependent exemption are highly dependent on the OP's income. It's almost impossible to give a meaningful answer without a lot more information. In addition there are other potential credits like dependent care credit, child tax credit and earned income credit that may or may not apply.

Dependent care will end once his starts kindergarten next year. My income makes earned income credit ineligible for me but useful for her.

I guess I feel like I'm overpaying if I give the dependent exemption to her to use every year instead of simply agreeing to pay 20k in alimony over, say, ten years.

 

[saintfool]

No advice - just want to pass condolences (?) to Saintfool. You've discussed the wife in the past but I don't remember any discussion of conflict.

Thanks, D. It sucked for a while but we're mostly happier apart. Our little guy is better off as a result.

 

[Tom Hagen]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

It's about the only advice anyone here can give. The tax benefits of HOH and a dependent exemption are highly dependent on the OP's income. It's almost impossible to give a meaningful answer without a lot more information. In addition there are other potential credits like dependent care credit, child tax credit and earned income credit that may or may not apply.

Dependent care will end once his starts kindergarten next year. My income makes earned income credit ineligible for me but useful for her.

I guess I feel like I'm overpaying if I give the dependent exemption to her to use every year instead of simply agreeing to pay 20k in alimony over, say, ten years.

My best advice it to use a calculator like this to run a projection both ways and see how much your total tax changes. I don't know how good the calculator is but it should give you an rough idea.

 

[Long Ball Larry]

This is definitely a factor to consider in the equitable equation. You really just need to crunch the numbers applicable to your salary, potential tax benefit, child support, etc.

That sure is high quality legal advice. Good work Woz.

It's about the only advice anyone here can give. The tax benefits of HOH and a dependent exemption are highly dependent on the OP's income. It's almost impossible to give a meaningful answer without a lot more information. In addition there are other potential credits like dependent care credit, child tax credit and earned income credit that may or may not apply.

terrible advice, saintfool - you need a wartime consigliere.

 

[Tom Hagen]

It's about the only advice anyone here can give. The tax benefits of HOH and a dependent exemption are highly dependent on the OP's income. It's almost impossible to give a meaningful answer without a lot more information. In addition there are other potential credits like dependent care credit, child tax credit and earned income credit that may or may not apply.

terrible advice, saintfool - you need a wartime consigliere.

Why do you hurt me, Larry?

 

[inca911]

Some items for consideration, using last year's numbers and trying to read between the lines from your posts:

• The child tax credit is $1,000. But you say you don't qualify, so your modified adjusted gross income must be >$95k. At a HOH MAGI of $75k, the child tax credit starts to disappear on a gradual basis.
• You son is a $3,800 exemption from your income, which has a value based on your highest tax bracket. That's at least 15%, and likely 25% based on your statements (or 28% if you have a MAGI above $127k). So the value of the exemption to you is $950 under HOH (25% * $3,800).
• If she claims your son on her taxes, then she'll get the tax credit of $1k + the $3,800 exemption, which is worth about $380 (i.e., 10% tax avoidance if her MAGI is less than $49k).
• Excluding the HOH vs. Single filing status, the estimated delta is $430 in her favor if she claims him. But that's not the real story.
• The HOH to Single transition changes the picture entirely as the break points change. The 15% bracket top drops from $49k down to $37k, and the 25% bracket top drops from $127k down to $89k. Using a MAGI of $100k, that's $600 more tax in the 15% bracket ($49k-$37k * (15%-10%)) + $1,100 in the 25% bracket ($11k * (25%-15%)). Call it $1,800 more that you will have to pay in tax if you give up HOH.
• Her benefit of lower tax bracket tiers is much more limited than yours, so I would not give up the HOH. Keep HOH and give your son the best financial advantage you are able to provide with the $1.4k tax difference. I only listed federal, but state tax will also have an effect.

Hopefully this helps. By the way, child support for your son is not tax deductible, nor does it count as income for her. Spousal maintenance is tax deductible for you, and counts as income for her. Depending on the tax rate, going the way of spousal maintenance can also provide a tax benefit. Likely about 10% in your case, as it will probably come out of your 25% bracket as a deduction and into her 15% bracket as income. Just make sure to set a time limit on the spousal maintenance that aligns with your son becoming 18. Otherwise the spousal maintenance could be seen as a forever commitment (unless she remarries), whereas child support payments to her terminate when your son is 18. I would suggest spousal maintenance at a rate you can tolerate until the full $20k is paid (e.g., $4k per year for 5 years), then $0 spousal maintenance. That should effectively cost you $2k less, and save more money for your son to benefit from. Use the tax law to your benefit. Best of luck in finalizing things.

 

[saintfool]

Thanks, Inca, and those others posting in the thread. Definite food for thought.

 

[saintfool]

quick update for those interested.

the divorce was finalized last week. settlement looks like we will continue to have joint custody at about 50/50 split. i'm the primary residential parent but that's really more a titular thing. she and i will collaborate on all important decisions (as we do now). i will pay maintenance - that $22k - over a period of time. child support will be 10% of net for both of us. tax stuff worked out where we will alternate the HoH and dependent exemptions each year. i'm responsible for his health insurance too.

the big thing reason for all this is the Ex can't be trusted to take care of that real world stuff and her employment is a lot of freelance and/or part-time. i make enough that i can make certain our son is provided for and lives with some security.

thanks for reading.

.

 

[inca911]

Glad things were wrapped up. How does the 10% child support from each of you work for things like college education? Do you each contribute to a jointly managed account for his benefit? Best of luck on what's next!

 

[Zow]

Sounds like a reasonable outcome