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Carefully Study Tax Returns After Divorce

Divorce can be messy in many ways, including financially. After everything is settled, you might think it’s all finally over. But for a few years after your divorce, it’s best to keep a close eye on all your documents, your bank statements, and most especially — your tax returns.

Here is an example of why:

Yvonne had been divorced for 4 years. Her divorce settlement from her ex-husband stated that she would receive $10,000 per month maintenance for 4 years paid monthly. She was also owed a property settlement payment of $200,000. This was to be paid at the rate of $50,000 per year with each payment made on January 1 of each year for 4 years.

Yvonne moved to Colorado and hired a new CPA to do her taxes. The Colorado CPA, in looking over the back tax returns, found that the old CPA from Yvonne’s previous state had been including $120,000 per year in her taxable income (the maintenance payments) PLUS the $50,000 property settlement payment! So for 4 years, Yvonne had paid taxes on $200,000 that should not have been taxable to her.

tax return after divorce [1]

Monitor tax returns after divorce. Photo by Frankie Leon.

There was no fraud here as the ex-husband was only deducting the $120,000 per year for the maintenance payments. It was clearly an error made by the old CPA from the previous state.

The Colorado CPA filed amendments for 3 three years for Yvonne and was able to get her $80,000 in tax refunds from both Federal and state.

The old CPA from Yvonne’s previous state was quite willing to pay Yvonne the amount of money that represented the taxes she paid on the $50,000 in the fourth year.

Obviously, Yvonne was quite happy!

But this true story illustrates that while your attorney is your advocate in court, she or he is probably not a tax expert. Even a CPA can make mistakes, so it’s important to review your tax returns each year during divorce and after to make sure any alimony or other divorce settlement income is handled properly.

Reviewing this information can be intimidating, and it’s a good reason to consider working with a Certified Divorce Financial Analyst [2].