Tax Considerations During Divorce

One of the last things you want to think about during a divorce is taxes. However, knowing a few basic tax matters arising from a divorce can reduce frustrations and surprises when filing your first tax return after the divorce is final.

Filing Status: Married Or Single?

Significant life changes, such as divorce or the birth or adoption of a child, have tax consequences for the entire calendar year in which it occurred. For example, if you were divorced in December, you will have to file as single, even though you spent 11 months married. Conversely, if you were married for the entire calendar year, but divorced in January you and your now ex-spouse will have to file as married for the previous tax year. You cannot simply file according to which filing status gives you the least amount of taxes.

However, you may be able to file as head of household, which can save you money. While this filing status is generally only for single people, you may be able to qualify while going through a divorce. If you have lived separately from your spouse for six months, paid the majority of costs for your residence, and would be able to claim a child as a dependent, you may qualify as head of household. You should consult with your tax preparation professional to determine if your circumstances permit you to qualify for head of household status.

Claiming Dependents

If there is only one child born of the marriage, only one parent can claim that child as dependent. This is true even if you split care and custody of the child exactly in half. Some ex-spouses with shared custody will rotate years claiming dependents, or if there is more than one child, will share the deductions. For example, in a two-child family you and your ex-spouse may each claim one child until the oldest child is emancipated, and then revert to rotating years for the unemancipated child.

Alimony And Child Support Payments

If you pay alimony pursuant to a written agreement, it likely provides that you can take an above-the-line tax deduction, meaning that unlike many other deductions, you can deduct alimony from your gross income, not your adjusted income. Conversely, alimony will be taxable to the recipient spouse. Depending on the amount of alimony at issue and the tax bracket, the recipient spouse could have substantial tax liability. You should consult with your tax preparation professional to determine your tax liability, if any, and plan for it accordingly.

Child support, on the other hand, is tax-neutral. This means you cannot deduct child support payments from your taxable income, nor is it considered taxable income for the custodial parent.

Innocent Spouse Relief

If you were unaware that your spouse cheated on your joint return, you may not be held responsible. If you are divorced, separated or living apart for at least 12 months and you can prove to the IRS that you were unaware of the tax fraud, you may be able to recalculate your tax obligations.

If you need help understanding the divorce process, or have additional questions related to your divorce, contact an experienced family law attorney to discuss your situation today.