The top three ways a divorce may affect your taxes
This article looks at three tax implications of divorce, including child custody, spousal maintenance, and filing status.
Divorce can present not just an emotional but a financial upheaval in one’s life. A marriage, in many ways, is like a business partnership, and when that partnership ends there are bound to be, for better or worse, financial repercussions. As Fox Business reports, those financial repercussions mean that divorce also has tax implications. From child custody to spousal support, there are plenty of cases where the fallout from a divorce will become readily apparent at tax time. Below are three of the important effects divorce has on taxes.
1. Names and filing status
It may seem like a minor detail, but if a divorce results in a name change for one of the spouses (such as the wife reverting to her maiden name) then the IRS should be notified as soon as possible. As the IRS’s website points out, failure to notify them of a name change could result in a tax refund getting delayed. Also, when determining whether to file joint or separate returns, the IRS advises that those who are legally divorced by December 31 of the applicable tax year are considered to have been divorced for the entire year. People who divorced after December 31, however, may still be able to file separately. Deciding whether it’s more beneficial to file jointly or separately will depend on each (former) couple’s circumstances.
2. Child custody and support
Child support has very little effect on one’s tax return. It is neither deductible for payors nor taxable for recipients. Custody, however, is a bit more complicated. The spouse who has primary custody for the majority of the year can claim a dependent exemption for each child. However, if the custodial parent consents to it, then the noncustodial parent may be able to claim this exemption and child tax credit instead. This arrangement may prove beneficial in cases where the custodial parent’s income is too high to qualify for the exemption but the noncustodial parent’s income would qualify.
3. Spousal maintenance
Unlike child support, spousal maintenance (or alimony) is considered taxable. Recipients will be required to declare it as income and payors can also claim it as a deduction. It’s important that both spouses understand that spousal maintenance is taxable since the one claiming it as a deduction will have to provide the recipient’s social security number on his or her tax return. The reason for supplying the recipient’s social security number is so the IRS can verify that both the recipient’s and payor’s tax returns match up in terms of maintenance payments. If they don’t, it is likely that one or both spouses will get audited.
The tax implications described above are another reminder of how complicated the fallout of a divorce can be. Ending a marriage affects various areas of one’s life and it can often be difficult to predict the many ramifications that are likely to result. Because of this unpredictability, a family law attorney can prove highly beneficial to anyone going through a divorce. The knowledge gained through years in family law can be used to help guide divorcing spouses through the often complicated divorce process.