Most divorces involve tax consequences of some sort. Though every situation is different, there are some common issues that may come up in this context for you and your soon-to-be ex-spouse. Talking to a knowledgeable divorce attorney can help you to understand the tax implications of your divorce agreement.
One of the primary ways in which a divorce will affect your taxes involves your filing status. The IRS offers the option for married couples to file a joint tax return. If you get divorced in the middle of the year you may wonder whether you are eligible to file jointly for that year. The IRS is very clear that the applicable date is December 31 of the tax year. Thus, if you were divorced by the last day of the calendar year, then you cannot file a joint return for that year.
Taxable Status of Alimony
Alimony or spousal support, unlike child support, is usually taxed as income to the recipient. For the person who is paying the alimony, the amount they pay is usually tax deductible. In other words, the person who is receiving the alimony is the one who pays the taxes on it. There can be exceptions to this, but it will be the default if other arrangements are not made.
Claiming Children and Child Support
As noted above, child support is treated differently from alimony when it comes to taxes. With child support, the person who pays it is not eligible for a tax deduction, and the person who receives it will not need to claim the payments as income. Essentially, it is the exact opposite of alimony, in that the default is that the person who pays the child support will be responsible for the taxes on that income. In order to get around this default, some people will pay alimony and child support together as “family support.” Then the money will be taxed as income to the recipient. Your divorce attorney can help you run the numbers to plan for support in a way that is most beneficial from a tax perspective.
The other major tax issue in a divorce involving children is who gets to claim the children as dependents and thus benefit from the associated tax credits and deductions. The default rule is whoever the child lives with for more than half the year gets to claim them on their taxes. However, this default can be modified in the divorce agreement. It is crucial to follow all IRS rules about these deductions. Parents who do not have custody of their children for more than half the year but who are nonetheless entitled by the divorce agreement to claim those children as dependents need to file a special form each year with the IRS.
Custodial parents should also be aware of any other tax credits that may be available for them, such as the child care tax credit. Legal fees paid specifically for tax advice during a divorce may also be deductible. Once again, your experienced divorce attorney can help you with the specifics of your scenario.