When it comes to taxes, most people would prefer to pay as little as legally required. So it stands to reason that when a couple divorces, who gets what tax deductions can become a matter of contention. Mediation and collaborative divorce can help prevent disagreements over tax deductions from escalating into time-consuming, retainer-devouring delays.
In mediation and collaborative divorce, parties often hire a certified financial planner or CPA to review the couple’s finances as part of the negotiations. Like the mediator or coach/facilitator, the financial professional is a neutral party. His or her job is to provide the parties with unbiased analysis about the actual dollar value of each possible tax deduction. This reduces arguments about why one person deserves more of the deductions than the other and instead puts the emphasis a fair and equitable sharing of tax liabilities for things ranging from child dependency exemptions, head of household status, mortgage interest and real estate tax deductions, etc.
Compare that to litigation where each party stakes out his or her position “on principle” and then hires his or her own financial specialist to support that principle. While having a hired gun on your side may seem like a way to pay less on taxes, it comes with several down sides. The first and probably most likely is that getting mired in a dispute about who gets what deduction will extend the divorce proceedings and may ultimately require a trip to court. Delays and court appearances mean additional fees for both parties and there’s no guarantee of a better outcome.
Another benefit of a negotiated approach, either through mediation or collaborative divorce, pertains to the filing of taxes during the transitional period before a divorce becomes final. If taxes have to be filed during that period (and they usually do) negotiations can address any number of issues ranging from whether to file joint or married filing separate returns, the payment of estimated taxes (who pays what?) and the allocation of tax refunds. During the course of litigation, getting two parties to agree on who pays what for taxes might be difficult if the proceedings are contentious.
As part of mediation and collaborative divorce, a neutral financial professional can address the entire tax situation, both during proceedings and once the divorce becomes final. He or she can provide a thorough analysis and “hard numbers” about what a deduction is worth to each party, which makes it easier to find a settlement or compromise. This can prevent any delays in filing to keep both parties in the divorce from getting into any difficulty with the IRS or state Department of Revenue.
They say there are but two certainties in life: death and taxes. Mediation and collaborative divorce may never be mentioned in the same sentence. Yet when it comes to divorce, it is the most certain way to come to an equitable decision as to who pays what.