Taxes and Divorce Settlements in Arizona
In a divorce in Arizona, you need to consider the tax implications of certain assets when entering into a divorce settlement. Failure to consider tax consequences when dividing community property in Arizona can result in an unfair and inequitable divorce settlement.
Arizona Revised Statute Section 25-318(B) allows a judge to consider the taxes that will become due upon the sale of an asset, such as capital gains taxes on a home. There are also income tax issues related to monies held in some retirement accounts.
This means you should not treat $10,000.00 in a bank account the same of $10,000.00 in a retirement account because the money in the retirement account will be subject to being taxed while the money in your bank accounts is not taxed when withdrawn.
The Montana Supreme Court ruled on the issues of taking taxes into consideration during a divorce in the case of In re Marriage of Broesder. Although the case cannot be cited as precedent in Arizona, it provides an overview of the subject. The American Bar Association had the following to say about the Montana Supreme Court’s ruling in that matter as follows:
The standing master was required to consider the tax consequences of the division of marital estate, which would likely require the sale of ranch, when dividing marital property in dissolution proceeding; the sale of ranch would trigger tax consequences, and the sale of ranch was likely as the record failed to establish there were available assets in the marital estate for husband to pay wife for her share of the marital estate.
Taxes and Spousal Maintenance in Arizona
Another area deserving of attention when settling your divorce related to the payment of spousal maintenance. Spousal maintenance was tax deductible to the person paying spousal maintenance and was taxable income to the person receiving spousal maintenance for orders entered before the end of 2018.
Changes in federal law removed the tax effect on spousal maintenance starting in 2019. Awards for spousal maintenance entered after January 1, 2019, are no longer subject to taxation or as an income tax deduction.
Taxes and Child Support in Arizona
Child support has never been taxable in Arizona. The new law applying to the tax effect of an alimony award, likewise, has no effect on the fact that child support is neither tax deductible by the person paying child support or taxable income to the parent receiving the child support.
The only exception to this rule pertains to the parents’ ability to deduct the cost of paying health insurance for the children or paying for the children’s uninsured medical expenses.
Chris Hildebrand wrote this article to ensure everyone has access to information about family law in Arizona. Chris is a divorce and family law attorney at Hildebrand Law, PC. He has over 24 years of Arizona family law experience and has received multiple awards, including US News and World Report “Top Arizona Divorce Attorneys”, Phoenix Magazine “Top Divorce Law Firms”, and Arizona Foothills Magazine “Best of the Valley” award. He believes the policies and procedures he uses to get his clients through a divorce should all be guided by the principles of honesty, integrity, and, quite frankly, actually caring about what his clients are going through in a divorce or family law case. In short, his practice is defined by the success of his clients. He also manages all of the other attorneys at his firm to make sure the outcomes in their clients’ cases are successful as well.