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:
- Establish in a divorce arrangement which parent gets to claim which child
- Have the divorce arrangement specify which years each parent gets to claim
- 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.
ADDITIONAL HELPFUL INFORMATION