There are several ways of owning property after marriage, but keep in mind that they may vary from state to state. Here are the most common:
Sole Tenancy: Ownership by one individual. At death, the property passes according to your will.
Joint Tenancy with Right of Survivorship: Both spouses have equal ownership and an undivided interest in the property. Upon the death of one spouse, the property automatically transfers to the surviving spouse. This is an effective way of avoiding probate.
Tenancy in Common: Joint ownership of property without the right of survivorship. Each spouse owns a separate and distinct share of the property. At death, your share of the property passes according to your will.
Tenancy by the Entirety: Similar to Joint Tenancy with Right of Survivorship. This is only available for spouses and prevents one spouse from disposing of the property without the other’s permission.
Community Property: In community property states, married people own property, assets, and income jointly; that is, there is equal ownership of property acquired during a marriage. Community property states are AZ, CA, ID, LA, NV, NM, TX, WA, and WI.
Tax Implications for 2024:
Joint Tenancy and Tenancy by the Entirety: These forms of ownership can simplify the transfer of property upon the death of a spouse, potentially avoiding probate. However, they may have implications for estate taxes.
Community Property: In community property states, the entire value of the property is stepped up to its fair market value upon the death of one spouse, which can reduce capital gains taxes if the property is sold.
Tenancy in Common: This arrangement allows for flexibility in estate planning, but it may require probate if one spouse passes away.
What are the tax implications of divorce?
After divorce, each individual will file their own tax return. However, there are several areas where transactions between former spouses can result in tax consequences. The most common areas are:
Child Support: If you’re making child support payments, they aren’t deductible. If you receive child support, the amount you receive isn’t taxable.
Alimony Paid: If you make payments under a divorce or separate maintenance decree or written separation agreement, you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. Voluntary payments made outside a divorce or separation decree aren’t deductible. You must enter your spouse or former spouse’s Social Security Number or Individual Taxpayer Identification Number on your Form 1040, Individual Tax Return, when you file.
Alimony Received: If you get alimony from your spouse or former spouse, it’s taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make an estimated tax payment or increase the amount of tax withheld from your wages.
Name Changes: If you legally change your name after your divorce, notify the Social Security Administration of the change. File Form SS-5, Application for a Social Security Card. The name on your tax return must match SSA records. A name mismatch can delay your refund. You cannot apply for a card online. There is no charge for a Social Security card. This service is free.
Spousal IRA: If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse’s traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.