3 Tips for Taxes in Tough Times

    How crucial it is, during divorce, and during these doubly difficult economic times to not give up. And tax time is a good opportunity to make some financial resolutions for the new year like not to give up trying to make wise personal and financial choices. Those can include starting or rebuilding savings in the context of also getting divorced. Seems impossible? Never say never. 

For those involved in divorce, here are three tips to help during tax time:

1. First and foremost for spouses working in the home, stay with, revisit or start with your IRA. Even if it’s a nominal amount.

2. If you’re still married, but in the process of divorcing  now  -- consider  trying to negotiate with your wage earning spouse for him/her  to contribute the to your “Spousal IRA” now. There’s still time -- until April 2009 -- to have money put aside right now for fiscal year 2008. And, depending partly on when your divorce becomes finalized, and whether you’ve yet (re)entered the workforce, the two of you should evaluate the feasibility of making 2009 contributions to your Spousal IRA. 

3. Be aware of the differences in child and spousal support that could have bearing on your ability to save in the future. For example: to be able to contribute to an IRA for yourself once you’re divorced,  you’ll need to have “earned income”. That means that even  if you have  dividends, interest, rental income and/ or the child support coming into your household -- none of it qualifies as ‘income.” So, If you were divorced, but not yet working outside the home, you would not have any income on which to base an IRA contribution. However, spousal support or “maintenance” / ‘alimony’ does qualify as taxable income to you, and could be income upon which you could continue to save for your retirement in an IRA.  

Get a good financial advisor to help educate you and help evaluate differing options and scenarios. 

Cynthia Anderson Thompson, Certified Divorce Financial Analyst (CDFA ™), MBA (Harvard), is founder of Divorce Planning Solutions LLC, a fee-only financial planning firm in New York.  She can be reached at cindy@divorceplanningsolutions.com or 914-906-2919.