Amidst the various other issues involved in getting a divorce, it can be easy to overlook the potential tax implications. However, when tax season rolls around, filing as a newly-divorced single filer can present some challenges, and proactively addressing the income tax aspects of your divorce can help save time, headache, and money down the line.
Subject to certain restrictions, divorcing spouses have some leeway to negotiate settlement terms that can minimize both of their respective tax burdens. But, in order to know how to negotiate, you first need to understand the general income tax principles that apply:
You should always see your CPA or tax preparer for your tax advice.
Q: For federal income tax purposes, does it matter when I get divorced?
Generally speaking, no. For federal income tax purposes, you are considered “unmarried” for the entire year in which you get divorced.
Q: Can I deduct the costs of getting a divorce on my federal return?
Certain expenses associated with the divorce process are deductible, and others are not. As stated in Internal Revenue Service (IRS) Publication 504:
“You can’t deduct legal fees and court costs for getting a divorce. But you may be able to deduct legal fees paid for tax advice in connection with a divorce and legal fees to get alimony. In addition, you may be able to deduct fees you pay to appraisers, actuaries, and accountants for services in determining your correct tax or in helping to get alimony.”
Q: What are the federal tax consequences associated with alimony payments?
The general rule regarding alimony is that payments are deductible by the payor and must be claimed as income by the recipient. For federal tax purposes, alimony does not include:
- Child support;
- Non-cash property settlements;
- Use of the payor’s property or payments to maintain the payor’s property;
- The recipient’s share of community income; or,
- Voluntary payments made outside of a final divorce decree.
Additionally, under IRS regulations, divorcing spouses can designate payments as “not alimony” in their divorce settlement; and, when this is the case, their designation will generally be respected.
Q: Do I need to itemize my deductions in order to deduct alimony?
No. You can deduct alimony payments even if you do not itemize deductions. However, the caveat is that you must file your federal taxes using Form 1040 (not Form 1040A, 1040EZ, or 1040NR). The amount of alimony paid goes on line 31a, and your former spouse’s name goes on line 31b.
Q: Are child support payments deductible by the payor and/or treated as income of the recipient?
No. Unlike alimony, child support payments are neither deductible by the payor nor reportable as income by the recipient.
Q: Which spouse(s) can claim the couple’s shared children as dependents?
The IRS rules and regulations governing divorced parents’ dependency claims are surprisingly complicated. While there are some general rules (i.e., “only one person may claim all the child-related tax benefits for a child;” and, in most cases, a child is considered a qualifying child of the custodial parent), there are a number of exceptions, and this is one area where divorcing spouses have a certain amount of leeway for negotiation.
Q: What if my former spouse failed to report income to the IRS while we were married?
If your former spouse failed to report income while you were married, you may qualify for a form of Innocent Spouse Relief. In order to qualify, you must be able to establish that, “you didn’t know, and had no reason to know, that there was an understatement of tax,” and you must file for relief within two years of receiving your first collection notice from the IRS.
Law Office of Renkin & Associates | High-Net-Worth Divorce Lawyers in North County, CA
If you have more questions about what to expect from your divorce and would like to speak with an attorney, contact the Law Office of Renkin & Associates. You can reach our North County, CA law offices at (888) 837-3564, or request a confidential consultation online and we will be in touch as soon as possible.