How Does Divorce Affect Your Taxes?
Filing taxes can be very confusing, especially for newly divorced couples who will be filing differently if their divorce was finalized the prior year. And it doesn’t help that the tax code keeps changing and adding new lines and forms.
When married couples divorce, the tax laws change regarding to what each person can and cannot claim. To take some guesswork out of filing your taxes, we suggest detailing how your child’s tax deduction / exemption will be handled on a yearly basis.
A neutral financial professional will be a part of your collaborative divorce team. They will help guide your financial situation and help you understand the changes in your tax profile post-divorce.
Once your divorce is finalized, there are several ways in which your tax liability may change:
- Depending on when your divorce was finalized, you may be able to file as single or Head of household if you were divorced for the tax year.
- Eligibility for head of the household status will depend on factors such as who provided funds for upkeep and where and who the children lived with the most.
- Additionally, due to a IRS tax rulings change, the time of your divorce may determine whether or not you must pay taxes on alimony. If your settlement agreement was made before the January 2019 tax law change, the payor can probably take a tax write off for spousal support paid. The spousal support recipient pays tax on their spousal support if their agreement was finalized before 2018. Agreements made after January 1, 209 means support (child and spousal) are not tax deductible for the payor and are not taxable to the recipient.
- You will want to investigate if your state tax laws connected to divorce and support are different than the IRS Federal tax rules.
- Child support is and has always been not tax-deductible for the payor and non-taxable to the parent recipient.
Your tax responsibility does not disappear after your divorce is finalized. It changes, and each of you are still responsible for paying your fair share of taxes.
The Collaborative Practice of San Diego is a nonprofit, multi-disciplinary referral network of independent professionals of attorneys, mental health professionals and financial advisors working together to learn, practice, and promote Collaborative processes for problem-solving and the peaceful resolution of family law issues in regard to co-parenting, with an eye toward preserving the emotional, as well as the financial and tax issues of the family.
Contact us today to learn how to develop a separation agreement that can be mutually agreed upon by both of you that considers how your taxes will be impacted!
Note: This information is general in nature and should not be construed as legal/financial/tax/or medical advice. You should work with your attorney, financial, medical or tax professional to determine what will work best for your situation.
