Understanding taxes after a divorce

Divorce inevitably involves financial changes.  One of those financial changes is related to your federal, state and local taxes.  When you are assessing financial options in your divorce or dissolution, it is important to consider the potential tax impact on these various options.

Your filing status

Your marital status for any given tax year is determined on December 31 – the last day of that tax year.  For example, if your Decree of Divorce or Decree of Dissolution of Marriage has been entered by the Court on or before midnight of December 31, you are considered unmarried for tax purposes for that calendar year.  In that case, you cannot file jointly with your spouse.

So long as they are not legally divorced, many spouses elect to file their taxes jointly, even as they are working their way through a divorce or dissolution process.  Typically spouses file their takes in the manner that is most mutually advantageous, meaning that the spouses reduce their tax liability as much as possible.

Once you are divorced, your new tax filing status may be “individual” or “head of household.”  You may be able to file as the head of household on your tax return if you meet these three qualifications:

• On the last day of the year, you were considered unmarried
• You lived with a dependent for more than six months of the year
• You paid more than half of the costs of keeping up a home for the year, including real estate taxes, home insurance, repairs or utilities

Who claims the children on their taxes?

If you and your former spouse have children, your Decree of Divorce or Dissolution of Marriage will address which parent is entitled to claim the children for tax purposes in a particular year.  There are various child-related tax benefits to consider, including the child tax credit, child and dependent care credit, and the potential to claim the earned income tax credit. Eligibility for these benefits is generally determined by the IRS.

IRS guidelines generally provide that the “custodial” parent is entitled to claim the children as dependents on the custodial parent’s tax return.  However, courts frequently allocate the child-related tax benefits between parents. For example, if spouses have one child, a common arrangement is that one parent claims the child in even-numbered years, and the other claims the child in odd-numbered years.  Where spouses have two children, frequently each parent will claim one child.

Spousal support, child support, and taxes

Generally speaking, spousal support payments are not taxable income to the recipient of the spousal support.  There are limited exceptions, including for spousal support agreements or orders that pre-dated January 1, 2019, when the Tax Cuts and Jobs Act (TCJA) eliminated the deductibility of prospective alimony payments.

Child support payments are not taxable income to the recipient.  In other words, the child support you receive will not be reported as income for tax purposes, and you won’t be required to pay taxes on those payments.

Understanding the various ways in which taxes can impact your divorce or dissolution can be confusing.  By considering potential tax impact to you post-divorce, you can feel more secure in making important financial decisions in your divorce or dissolution process.