Divorce and taxes: a Q & A for the uncoupling
“In this world nothing can be said to be certain,” Benjamin Franklin reportedly said, “except death and taxes.”
It’s an oft-cited epigram, of admirable brevity if a bit bleak. It is fair to ask, however, whether Franklin, had he faced divorce, would have coined a corollary: Marriage is uncertain and its end involves tax issues.
All marriages end of course, either in death or divorce. In this post, we will focus on the latter scenario and its effect on taxes.
When does your filing status change when you’re getting divorced?
Under the federal tax code, you are considered unmarried for the entire year if your divorce became final by the last day of the tax year.
In other words, even if your divorce didn’t become official until December 30, you would still be considered unmarried for that entire year.
What about separation?
It depends on what type of separation we’re talking about. If the separation is not a formal “legal separation,” your filing status options are the same as for married people who aren’t on the verge of divorce.
You can choose married filing jointly. Or you can choose married filing separately. What you can’t do is file as separated.
But if you are considered legally separated under state law by an official court order, you can file as a single person, even if you technically aren’t divorced yet.
After divorce, who gets the tax break for child dependents?
Historically, the tax exemption for dependent care went to the spouse (usually the mother) who got primary physical custody of the kids.
In today’s society, however, it is more and more common for parents to get joint custody. The child may spend the same number of nights with each of you.
In this situation, one possible solution is to alternate with your ex. You could take the exemption one year, your ex the next and so on. Or, if you have two children, you could each take one exemption.
Keep in mind, however, that there is paperwork involved in these arrangements. The IRS requires the completion of Form 8332 for a custodial parent to release the exemption.
Are there taxes on child support or alimony?
Child support is not taxable income. But alimony is.
Alimony is also known as spousal support or spousal maintenance. It is tax deductible for the ex-spouse who pays it.
What is the innocent spouse rule?
Under certain circumstances, it is possible to avoid having to pay a spouse’s or former spouse’s tax debt. This is true even if you filed a joint tax return.
There are actually three different types of relief that may be available under the law. It is important to talk with a knowledgeable tax attorney about your options.
What other tax issues can arise in divorce?
When a couple divorces, there can also be other tax issues that need to be addressed. These can include the taxability of transfers of property between the spouses and the tax treatment of retirement plan divisions.