When you are preparing for a divorce it is important to understand how your divorce may affect your tax obligations to the Internal Revenue Service (IRS). While IRS Publication 504 sets forth various tax rules that apply when you are divorced, figuring out how to file and report alimony, child support, property settlements and other transfers of assets can be a very challenging process.  Because it so easy to get lost in the maze of IRS rules and regulations, below are some key points to help you better understand how your federal taxes may change after a divorce. 

Your Filing Status - Married or Single?

Under IRS rules if you have obtained a final divorce decree of decree or separate maintenance by the last day of the tax year, the IRS considers you to be an unmarried person for the whole year.   This means that even if your divorce becomes final on the last day of December, your filing status will be single for the tax year.  If, however, your divorce is not finalized by December 31st, you will generally have to file a married tax return.  In these situations, you should consult with an experienced family law attorney who can help you determine whether you and your spouse should file separate (“married filing separately”) or joint tax returns.  Additionally, your attorney can review your situation to determine whether you may qualify for head of household filing status.

Alimony

If you are paying alimony to your ex-spouse pursuant to your divorce decree or agreement, the alimony will be deductible from your income. Conversely, if you are receiving alimony payments you must include these payments as income when filing your taxes.   To deduct the alimony paid, the IRS requires you to file your tax return using Form 1040 – you will not be able to use Form 1040A, 1040EZ or 1040NR.   When reporting alimony received you must use Form 1040 or Form 1040 NR – you cannot use Forms 1040A, 1040EZ or 1040NR-EZ. 

Child Support Payments and Tax Exemptions for Dependent Children

If you are paying child support, these payments are not deductible from your income.  Similarly, if you are receiving child support payments from your former spouse, these payments are not considered income for federal tax purposes.

In many situations, the divorce decree or a written declaration will set forth whether you or your former spouse can claim the exemption for your dependent children – generally, but not always, the custodial parent will claim the exemption.  The IRS rules for determining the exemption can be quite complex, so it always best to speak with a qualified attorney.  Additionally, if you are the custodial parent your attorney can advise you as to whether you may qualify for additional child tax credits.

Property Settlements

When a transfer of property between spouses occurs as a result of divorce, there is generally no recognized gain or loss for either spouse.  IRS Publication 504 explains that “property” includes all property - real or personal property, tangible and intangible property, and separate and community property.   Because there are certain exceptions to this general rule, it is always best to speak with your attorney when you have questions. 

More Questions – Discuss Your Situation with the McKinney Family Lawyers at our Firm

Navigating IRS tax obligations is a very difficult process which can become even more challenging when you are going through a divorce.  If you have questions, we encourage you to discuss your situation with one of the McKinney Family Lawyers at Nordhaus Walpole PLLC.  You can schedule your free confidential consultation by calling us at (214) 726-1450 or requesting an appointment online.