The IRS might be the last thing on your mind when you start the divorce process, but taxes are a major player. From an accounting perspective, there are many different financial aspects to consider when divorcing. Are you prepared for the tax consequences – both positive and negative – of divorce?
Fast Tax Facts in Divorce
- Child support payments made are not deductible, and not taxable.
- Payments received under a divorce or legal separation agreement are deductible as alimony, but any payments made that are not included in the agreement are not deductible.
- Alimony payments you may receive are taxable for the year you receive them. Alimony is not subject to tax withholding.
- Your refund may be delayed if the name on your tax form does not match your Social Security Administration (SSA) records. If you change your name after the divorce, you will need to notify the SSA of the name change and apply for a new Social Security card before you file your taxes.
- You will be unable to deduct any contributions made to your former spouse’s traditional IRA for the year that the divorce is finalized. If the IRA is in your name, you will still be able to deduct contributions.
New Year, New You, New Filing Status
It is sometimes in the couple’s best interest to wait to finalize the divorce until a new tax year. If you are thinking about finalizing your divorce at the end of the year, remember that you will have to file your tax return separately for that tax year. This could significantly impact your refund amount, so carefully consider your filing options as you wrap up divorce proceedings.
Know Who Gets To Claim Dependents
If co-parenting is an aspect of your divorce, another important tax consideration is which parent will claim the children as dependents. Unless otherwise specified in your divorce agreement, the custodial parent will claim them. In joint custody arrangements, the parent who has the child for the most number of days will claim them on their taxes.
Taxes are just one of many complicated calculations you will need to make during your divorce. A knowledgeable family law attorney will work with you to ensure that you fully understand every aspect of the process.
Disclaimer: Selleck Legal PLLC is not a tax law firm. Please consult a tax professional for independent tax advice.