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Think of Uncle Sam

Posted by Felicity Buchanan on Fri, 08/17/2007 - 8:54pm

Christina Rowe opted for her ex-husband’s share in their house instead of alimony after he spent a month in jail for skipping child support. Rowe figures that, over time, the move saved her about $20,000 in taxes.

Tax tips aren’t thrown around a lot during divorces, when emotional grenades are more likely to be tossed. But estranged spouses can save a lot by working together calmly on alimony, the sale of the house, income-tax filing status and timing of the divorce.

“Smart people say ‘I hate you, but I hate the Internal Revenue Service more,’ ” says Diana L. Mercer, an attorney and divorce mediator at Peace Talks Mediation Services in Playa del Ray, Calif., and co-author of the book Your Divorce Advisor.

Every divorce is different, so ignore anything that seems like blanket tax advice. It’s important to consult a good advisor, perhaps a lawyer or CPA, for the best approach.

In the case of Rowe, the trade-off between alimony and the house worked out. She would have had to pay tax on alimony because it is considered taxable income, but she didn't owe anything on the share of the house because property can be transferred tax-free in a divorce settlement. What saved taxes in her circumstances might not apply to others, however.

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