How Does Divorce Affect Your Taxes?

How Does Divorce Affect Your Taxes?

Posted By R. Gregory Colvin LLC || 25-Feb-2016

Divorce is a major life event, and as such, it comes with a number of tax consequences. If you and your spouse are looking to separate or have recently separated, it is important you remain aware of the effects that your divorce may have on your tax return.

Are Alimony or Child Support Payments Tax Deductible?

Alimony payments are tax deductible for paying spouses and must be reported by receiving spouses as taxable income. In order for payments to be considered alimony, the terms of the payments must be established in writing in either a couple’s separation agreement, stipulation of settlement, or a court order. For this reason, it is imperative you and your attorney avoid using the phrase “family support” in your divorce agreement, as it is meaningless when tax season comes around. Child support, on the other hand, is not tax deductible for the paying parent nor taxable income for the receiving person.

Which Parent Can Claim Their Child as a Dependent?

Only one parent is allowed to claim each child on their tax return. This can be a contentious affair, as the parent that gets to claim their child on their tax return gains access to several benefits such as dependency exemptions, a $1,000-per-child tax credit, and deductions for expenses spent on the child’s care. If a divorce arrangement declares a custodial parent, this can be a pretty straightforward decision. If parents have joint custody, however, making a decision is less cut and dry.

This issue can be avoided in the following ways:

  1. Establish in a divorce arrangement which parent gets to claim which child
  2. Have the divorce arrangement specify which years each parent gets to claim which child
  3. Establish a clause where a parent will not be able to claim a child if they are late on paying child support during the tax year

What is My Filing Status?

If you and your spouse did not have your divorce finalized before the end of the calendar year, you can still file a joint tax return as a married couple. Once your divorce is official, however, you will lose your right to file a joint return. Instead, you will have the option to file as head of household if you paid for more than half of your home’s upkeep and had a dependent living with you for at least half the year. If not, you will likely have to file as single.

Who Pays Takes on Assets After a Divorce?

Property often changes hands and is divided during the process of divorce. It is important to remember that tax obligations come with transfer of ownership. For example, if a person receives a house in a divorce and later sells it, they will be responsible to pay any capital gains taxes that come with the sale. Likewise, the same applies to the transferring of assets such as retirement accounts, vehicles, and other types of personal property.

Contact a Knowledgeable Orlando Divorce Lawyer

If you and your spouse are looking to divorce, it is imperative you retain the services of a knowledgeable Orlando Divorce attorney from R. Gregory Colvin, LLC to protect your interests and ensure your divorce arrangement clearly establishes the tax responsibilities of you and your spouse. Having represented divorcing clients for 25+ years, our attorneys have the knowledge and experience to help you maximize your chances of achieving an amicable solution.

Contact our firm online or request a free consultation today to get started.


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