Taxes are one of the most overlooked, yet most critical, aspects of a divorce settlement. A deal that looks good on the surface can turn into a financial disaster if you don't understand the tax implications.

While tax laws are complex, here are two of the most important things you need to know:

1. Division of Assets Can Usually Avoid Taxation If the Proper Steps Are Taken. In general, the transfer of property between spouses as part of a divorce is not a taxable event. However, sometimes a simple Decree of Divorce is insufficient and a special kind of divorce order under ERISA is necessary. 

2. Spousal Support Has Changed. For many years, spousal support was tax-deductible for the person paying it and taxable income for the person receiving it in Ohio. This is no longer the case. For any divorce agreement finalized in the present day, spousal support is now tax-neutral. It is no longer deductible for the payer, and it is no longer considered taxable income for the recipient.

Understanding these rules is essential for negotiating a truly fair settlement. For example, $3,000 a month in non-taxable spousal support is worth significantly more than $3,000 a month in taxable income from a job. Or, for example, not following the proper process to divide a 401k can lead to a tremendous amount of tax and penalties. 

To learn more about the hidden financial traps in divorce, download our free guide: Financial Clarity & Control: The Professional's Guide to a Secure Financial Future After Divorce.