Divorce can be a painful and confusing process. Couples must work through years of history, divide up assets and property, and figure out how to care for any children. When a couple finally reaches their resolution, a whole new world awaits them — and a whole new way of filing taxes.
Recently divorced people will have to navigate an unfamiliar tax environment after divorce. With proper guidance, ex-spouses can avoid common tax filing mistakes.
Tax filing mistakes
After divorce, many tax items change for individuals and their families. Decisions made during the divorce will have a significant impact on the following areas:
- Filing status: If divorced by the end of the calendar year, ex-spouses must change their filing status from “married” to “single” or “head of household.” Couples who have lived apart for six months or those with legally binding separation agreements must make this change, too. Couples still married by the time taxes are due will file as “married” or “married filing separately.” Filing as “head of household” or “married” tend to have lower taxes.
- Dependents: The IRS assumes that the primary custody holder will claim the children as dependents on their tax returns. For multiple children, co-parents can split the exemptions between themselves, but the higher earner will typically receive a larger tax break. Divorced parents without custody should remember to deduct any medical expenses they paid for any children.
- Child support and alimony: Though similar, these two types of payments function very differently on tax forms. The IRS considers alimony deductible for the payer, but not child support. Alimony must also appear as taxable income for the recipient. Some divorce arrangements can group these payments to avoid some taxes, but these arrangements are fragile.
- Property division: Before signing papers, couples may transfer property tax-free between each other. Additionally, a couple can sell property like cars or real estate and split the proceeds. Before buying out a partner’s share of a house or other property, consult with a professional about paying taxes on the home.
Legal counsel can provide more information
Spouses with questions about the tax implications of divorce can find answers with a local lawyer familiar with family law and divorce. An attorney can help work with one’s spouse, draft comprehensive divorce agreements and assess the tax implications of property transfers or child care.