Life Events

Divorce is hard enough without tax surprises. Understanding how the process affects your return can help you make better decisions during negotiation.

What filing status applies after a divorce?

Your marital status on December 31 determines your status for the whole year. If your divorce is final by then, you file as single or, if you qualify, as head of household. If it is not final, you are still considered married and may file jointly or separately.

Can I qualify as head of household?

Generally you must be unmarried or considered unmarried, pay more than half the cost of keeping up a home, and have a qualifying person who lived with you for more than half the year. This status usually carries more favorable treatment than single. Details are at irs.gov.

Who claims the children?

Typically the parent with whom the child lives for the greater number of nights is the custodial parent and is entitled to claim the child. The custodial parent can release the claim to the other parent by signing the proper IRS form. Your divorce agreement should address this explicitly.

Is alimony deductible?

It depends on when the divorce or separation agreement was made. For agreements finalized after 2018, alimony is not deductible by the payer and is not taxable income to the recipient. Older agreements may follow the earlier rules unless modified. Check the date on yours.

How is property division taxed?

Transfers of property between spouses as part of a divorce are generally not taxable at the time. But the receiving spouse takes on the original cost basis, so there may be built-in gains when the property is later sold. A dollar in a retirement account is not the same as a dollar in cash, so weigh the after-tax value of what you receive.

What about retirement accounts?

Dividing a workplace plan usually requires a court order called a qualified domestic relations order. Transfers made correctly are not taxed, but withdrawals taken to cash out can trigger tax and penalties.

What about the house?

If one spouse keeps the home and later sells, the exclusion of gain on a main home has specific ownership and use conditions. Selling and the timing of the sale can change the tax result.

If you are going through a divorce, we can work with your attorney on the tax side. Contact our office to start the conversation.