Depending upon the process that is used, divorce costs in Maryland can destroy a family’s finances.
Whether it’s Mediation, Collaborative Divorce, or litigation, thousands of dollars can be wasted and paid to professionals prior to the creation and acceptance of a Maryland Separation and Divorce Agreement. Retained divorce professionals can help you significantly reduce these costs by making them tax deductible.
Generally speaking, fees paid to your attorney or mediator are not tax deductible; however, with a little additional work from your attorney or CPA, you can recoup 25% or more of these costs. This stimulus comes in the form of tax savings as otherwise nondeductible fees are transformed into tax-deductible fees.
An example of this is where your attorney is in meetings discussing the amount of alimony to be paid or collected. If the time for these discussions is delineated in your bill, those fees will be deductible.
Deductible legal or accounting fees paid for the following services are listed below:
- Tax advice related to a divorce
- Determination or collection of alimony
- Determination of estate tax consequences of a property settlement
- Appraisals and actuaries, if the services were for determination of the correct amount of tax or to assist in paying alimony
Note that the fees above are considered miscellaneous itemized deductions, subject to the 2 percent limitation on Adjusted Gross Income.
A frequently missed opportunity is where rental properties are part of the Marital Estate. If the costs to analyze the disposition of these properties is itemized, they can be deducted when the properties are sold.
If you are in the divorce process or interviewing divorce professionals, ask them if they will itemize your bills. If they are willing to do so, your actual out of pocket costs could be significantly reduced.
John Faggio is a CPA, CFP®, and a Certified Divorce Financial Analyst™. Faggio Financial LLC is Central Maryland’s only exclusive divorce financial planning practice. Email or call John today at 410-988-7333 for tax savings strategies in your divorce.