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Tax Implications of Divorce

tax implications of divorce

Divorce is a tough enough business without being blind-sided by tricky tax implications of divorce. If you are considering a divorce, be sure you know what the tax implications will be for you. Generally speaking, a knowledgeable local divorce attorney can advise you further.

The Date of the Divorce

We all know that tax obligations are determined by marital status. The IRS is unambiguous about how to file if you are in the process of divorcing. In order to claim single status, your divorce has to be finalized by December 31. Even if you were married the entire year, you must file as single. If the divorce is finalized on January 1st, you can file as married for the previous year.

Dependents

Only one parent can claim each dependent. If you both try to claim the same child, it could wind up launching you into audit territory. If you cannot agree on who gets to claim a child, the IRS will generally let the custodial parent—whoever has the child for 51% of the time or more—get the deduction.

Head of Household Status

Generally the custodial parent claims head of household status, but can transfer the status to you by filling out form 8332. You might also be able to claim head of household if your divorce was finalized prior to December 31st and you lived separately from your spouse before the first of June and you paid over half of the home maintenance expenses.

Child Support

Sorry, child support is not tax deductible, nor does it count as income to the recipient.

Spousal Support

If your divorce was finalized prior to December 31, 2018, the recipient of alimony payments must pay taxes on the money, and the payer of alimony may deduct payments. No tax implications here for divorces that took place after 2018. Alimony payments do not affect either person’s tax burden.

Divorce Costs

While legal fees are not deductible, some fees associated with the divorce may be. Check with an attorney to see what your situation is.

Retirement Plans – Tax Implications

Things can get tricky tax-wise if you have a shared retirement plan. If one spouse simply hands over retirement money to the other, the IRS will consider it a taxable distribution.  Waiting until after retirement to share benefits is another option. Then you could simply have the court order the pension provider to split the pension, giving both spouses a particular percentage. This would require some relatively simple paperwork with a qualified domestic relations order QDRO).

Getting it Right

At Beck Law P.C., we work to get our clients the best terms possible in a divorce. That means taking a look at long term tax issues, along with the details that are important in the here- and-now. If you live in Sonoma County, Mendocino County or Lake County California, contact our Santa Rosa office today to discuss your situation in a confidential setting.

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