As with any other situation involving money or assets, there are tax implications when property is divided during a divorce in Illinois. As property changes hands or income is increased or decreased, each spouse may have to adjust his and her tax obligations.
According to the Journal of Accountancy, if property is transferred from one spouse to the other during the divorce, there may be taxes due on the transaction. In general, property that is transferred is susceptible to a gift tax or a taxable gain. However, when such transfers are included as part of the divorce decree, they may not be subject to taxes.
Alimony, on the other hand, is a whole different situation. Payments are considered alimony when ordered under a divorce decree. The IRS states clearly that alimony is considered income for the person receiving it and as a deductible expense by the person paying it. It is important to note, though, that child support is not considered income nor is it deductible for tax purposes.
For retirement accounts, if a person’s divorce is finalized within a year, that person cannot claim any contributions he or she made to the ex-spouse’s account. Any interest transferred on an account as part of the divorce is not taxable, though. In addition, interest transferred from health savings accounts or Archer medical savings accounts is also not taxable. Finally, a person may be able to deduct some of the costs associated with tax assistance and help to get alimony that he or she received as part of the divorce process.