Divorce and Taxes

Divorce and Taxes

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Divorce and Taxes

Filing status. Filing status is based on your status as of

December 31. If you are divorced under a final decree

by the last day of the year, you are considered unmarried

for the whole year and you cannot choose Married

Filing Jointly as your filing status. If you are still married

at the end of the year (your divorce is not yet finalized),

then you must file as Married Filing Jointly or Married

Filing Separately, or Head of Household, if qualified.

You cannot file as Single if you are married.

Joint responsibility. You may be held jointly and individually

responsible for any tax, interest, and penalties

due on a joint return filed before your divorce. This

responsibility may apply even if your divorce decree

states that your former spouse will be responsible for

any amounts due on previously filed joint returns.

Name change. If you changed your names because of

divorce, be sure to report the change to your local Social

Security Administration office before filing your tax return.

The name you enter on your tax return must be the

same as what is on your Social Security card.

Exemptions. If you obtained a final decree of divorce or

separate maintenance during the year, you cannot take

your former spouse’s exemption. This rule applies even

if you provided all of your former spouse’s support.

Dependents. In most cases, a child of divorced or separated

parents is the qualifying child of the custodial

parent (the parent with whom the child resides for the

greater number of nights during the year). If the parents

divorced or separated during the year and a child

lived with both parents before the separation, the custodial

parent is the one with whom the child lived for

the greater number of nights during the rest of the year.

Divorce and

Taxes

Deducting Costs of Divorce

Generally, attorneys’ fees and other expenses paid in

connection with divorce are not deductible. Exceptions:

• Fees paid to determine tax or for tax advice on federal,

state, or local taxes of any type are deductible.

• Fees paid to get or collect alimony are deductible.

Fees paid for a spouse or former spouse are not deductible

but may qualify as alimony.

Alimony

Alimony is a payment to or for a spouse or former spouse

under a divorce or separation instrument. It does not include

voluntary payments not made under the instrument.

Alimony is deductible by the payer and must be

included in the recipient’s income. Agreements entered

into after December 31, 2018, are not deductible by the

payer and not included in income by the recipient

Alimony Requirements

Alimony. Payments are alimony if

ALL the following are true:

Not Alimony. Payments are not alimony

if ANY of the following are true:

• Payments are required by

a divorce or separation

instrument.

• Payer and recipient spouse do

not file a joint return.

• Payment is in cash (including

checks and money orders).

• Payment is not designated in

the instrument as “not alimony.”

• Divorced and legally separated

spouses are not members of the

same household when payment

is made.*

• Payments are not required

after the death of the recipient

spouse.

• Payment is not treated as child

support.

• Payments are not required by a

divorce or separation instrument.

• Payer and recipient spouse file a joint

return.

• Payment is:

– Not in cash.

– A noncash property settlement.

– Spouse’s part of community income.

• To keep up or use the payer’s property.

• Payment is designated in the

instrument as “not alimony.”

• Divorced and legally separated

spouses are members of the same

household when payment is made.*

• Payments are required after death of

the recipient spouse.

• Payment is treated as child support.

* A house formerly shared by the spouses is considered one household.

Spouses are not treated as members of the same household if one spouse

is preparing to leave and does in fact leave no later than one month

after payment. Until divorce or legal separation is final, spouses can be

members of the same household.

Designating payments as “not alimony.” Spouses can

agree not to treat otherwise qualifying payments as alimony.

A provision clearly instructing that the payment

Estimated tax. If you made joint estimated tax payments

for the current year and you were divorced during

the year, either you or your former spouse can

claim all of the joint payments, or you each can claim

part of them. If you cannot agree on how to divide the

payments, you must divide them in proportion to each

spouse’s individual tax as shown on your separate returns

for the current year.

Property Settlements and Transfers

If you transfer your home to your spouse or you transfer

it to your former spouse incident to your divorce, you

will not recognize gain or loss. This is true even if you

receive cash, release of marital rights, assumption of liabilities,

or other consideration for the home.

Incident to divorce. Transfers are incident to divorce if

they are:

• Made within one year after the date the marriage ends,

or

• Related to the ending of the marriage—made under

an original or modified divorce or separation instrument

within six years after the date the marriage ends.

Transfers that do not meet these conditions are presumed

not to be related to the ending of the marriage.

Sale of residence. For purposes of the sale of home exclusion

of gain, an owner is treated as using property

as his or her principal residence during any period that

use is granted to a spouse or former spouse under a divorce

or separation instrument.

is not to be treated as alimony must be included in a divorce

or separation instrument or in a written statement

signed by both spouses that refers to a previous written

separation agreement. If spouses are subject to temporary

support orders, the designation must be in an order.

A copy of the written instrument must be attached

to the recipient’s return.

Payments to third parties. Payments to third parties

under a divorce or separation instrument can qualify as

alimony. Payments are treated as received by the spouse

and then paid to the third party. The recipient can claim

deductions for items paid with the alimony.

Home occupied by spouse. If, under the terms of a divorce

or separation instrument, one spouse occupies a

home that belongs to the other, the owner’s payments

for mortgage, real estate tax, insurance, and repairs

are not alimony. Payments for utilities may be alimony.

Rent-free use of property is not alimony.

Child Support

Child support is not deductible by the payer or taxable

to the recipient. Payments specifically designated as

child support in a divorce or separation instrument are

not alimony.

Payments not specifically designated “child support”

are treated as child support if they are reduced either:

• On the happening of a contingency relating to a

child (reaching a specific age or income level, leaving

school, marrying, becoming employed, dying, leaving

the household, etc.).

• At a time that can be clearly associated with such a

contingency.

Underpayment of alimony or child support. If alimony

and child support are both required under a divorce

or separation instrument, and payments are less than

the total required, payments apply first to child support

and then to alimony.

Contact Us

There are many events that occur during the year that can affect

your tax situation. Preparation of your tax return involves summarizing

transactions and events that occurred during the prior

year. In most situations, treatment is firmly established at the

time the transaction occurs. However, negative tax effects can

be avoided by proper planning. Please contact us in advance

if you have questions about the tax effects of a transaction or

event, including the following:

• Pension or IRA distributions.

• Significant change in income or

deductions.

• Job change.

• Marriage.

• Attainment of age 59½ or 70½.

• Sale or purchase of a business.

• Sale or purchase of a residence

or other real estate.

• Retirement.

• Notice from IRS or other

revenue department.

• Divorce or separation.

• Self-employment.

• Charitable contributions

of property in excess of

$5,000.