Divorce Advice for Taxpayers

It is easy to get caught up in the emotional turmoil of divorce. However, it’s important to seek tax advice in order to handle the financial issues that can come up during the division of assets. Property division, custody arrangements, and child support and alimony agreements are all divorce-related matters that carry significant tax implications. The more advice and information you can obtain, the better off you’ll be.

Filing Status

If you are considered legally divorced as of the last day of the calendar year, you must file as ‘single‘ or ‘head of household.’ You may also claim one of these statuses if you are not divorced but you have a legally binding separation agreement, or if you and your spouse have lived apart for (at least) the last 6 months of the tax year. However, if you are still legally married as of December 31st and were still living together, you must use the status of ‘married filing jointly‘ or ‘married filing separately.’ As a bit of tax advice, ‘head of household’ and ‘married joint’ filers generally have lower taxes than ‘single’ and ‘married separate’ filers. So even if you are divorcing, you may want to file a joint return and take advantage of this advice while you can.

Dependent Exemptions and Child Custody

The IRS generally assumes that the divorced parent with primary custody will claim the exemption for dependent children on their tax return. However, divorced couples with 2 or more children may decide to divide the exemptions between them. Even if you don’t have custody of your child, you still have the right to deduct their medical expenses if you paid for them. Many divorced parents forget to take advantage of this advice.

Alimony and Child Support Payments

A divorcing couple must also make decisions when it comes to child support payments and alimony payments. Child support payments are not deductible to the parent paying them; however, alimony is considered an above-the-line tax deduction for the payer. Alimony payments are also considered taxable earned income to the parent receiving them. It is important to understand the rules regarding divorce-related tax deductions before using this advice.

There is no doubt that a divorce will change the way you approach and file your taxes. For this reason, you should seek divorce advice from a professional before official proceedings begin. While divorce itself may be inevitable, there is advice you can follow to make it less harmful to your financial situation.

---