How a Divorce Can Affect Taxes

by Emily Guy Birken · 11 comments

The end of a marriage is not only tragic, but it also leaves a number of logistical and financial problems in its wake. One of the issues that many separating couples may need to educate themselves about is how a divorce will change their tax burden. Here are four topics that might make the first year of tax-paying after divorce more complicated — and how to deal with them:

1. Filing as married or single depends on when you got divorced. You can continue to receive the tax benefit of filing jointly as a married couple only if you were still officially married for the entire tax year in question. For example, if you are in the process of a divorce that will be finalized in January of 2013, you and your spouse can still claim a married status on your taxes for 2012. If, on the other hand, your divorce is finalized in December 2012, then you will both have to file as single.

Filing as head of household is one possible way to avoid the marriage status conundrum and still save some money on April 15. In order to qualify for this status, you must file your return separately from your estranged spouse, you must have lived apart from your spouse for at least the last six months of the tax year, you must have paid over half of the cost of maintaining your primary residence, and you must be able to claim your child or children as your dependent.

2. Claiming children as dependents can be tricky. In the past, it was considered a given that the divorcing wife would get custody of the children, which meant that she also was entitled to claim them as dependents. However, when custody is split between parents, the tax implications can be a little difficult to puzzle through since the IRS does not have a crystal clear definition of custody in the case of joint-custodial parents.

In general, if the court has designated you as your child’s custodian, then you can claim them as dependents. However, if there is no court order, or if the parents have agreed to some sort of joint custody, the IRS considers the parent who has the physical custody of the kids for most of the year to be the custodial parent. This does not help parents who are splitting custody 50/50. Since both parents cannot legally claim the same dependent, there are a couple of options for divorcing parents with joint custody: 1. If you only have one child, you can switch off years which parent claims the child as a dependent. 2. If you have multiple children, you can split up which child is claimed by which parent. Both of these options are perfectly legal.

3. Alimony and taxes. If you are paying alimony to your ex-spouse, you will enjoy a lower tax bill, as alimony payments can be deducted. In fact, alimony does not even need to be itemized in order for you to take advantage of the deduction.

If you are receiving alimony from your ex, you need to know that this is considered to be taxable income, and it will affect how much you owe come tax time. You may need to either make estimated tax payments or increase your withholding at your job so that you are not hit with a large tax bill come tax time.

4. Child support and taxes. Child support, unlike alimony, is considered completely tax neutral. That means that the payer cannot take a deduction for it, and the recipient does not need to pay taxes on it. Some ex-spouses who are paying child support may attempt to classify child support payments as alimony in order to receive the tax benefit though. This is a situation that needs to be hammered out between both spouses so that the children are financially cared for without putting an undue burden on either parent’s finances.

The Bottom Line

Take the time to educate yourself on what to expect financially and tax-wise before your divorce is finalized. Even in the midst of an overwhelming experience, it pays to know what you will be facing.

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  • David Urevich says:

    I was married in 2014. My wife and I settled our divorce in 2016. I cashed out my 401K and assumed a tax burden of aproximently 22,000 in 2014. My wife decided to file married separate for 2014 and added a increase of an additional 30,000 to the tax burden. Can this be done. Do I have any recorse in this situation. She filed in order to penalize me with the additional expense. Does anyone know what may be done to minamalize my exposure in this. I did try to convey that if we filed together, this could have been avoided with no additional expense to her!

  • Joe says:

    I have separated from my wife and filed for divorce. We have no official separation agreement. She moved to another state and has been gone for the entire year of 2013. Can I claim the money I have paid her for spousal maintenence as Alimony?

  • Mark Steves says:

    The conclusion said it all, it’s better to ensure and clear things out to avoid any problems especially in tax matters. It could be complicated specifically when number of dependents is involved. Seeking for professional help is necessary to resolve confusion.

  • Ornella@Moneylicious says:

    It is really important to educate yourself on how taxes and other personal finance matters will impact you during a divorce. I agree with @Lance, getting a CPA save you tons of money.

    Also, during a divorce most people are not prepared with have to pay more in taxes. You can be taken off guard by the amount of taxes you will have to pay filing single vs married file jointly.

  • Shane says:

    Divorce is never a fun thing for anyone and it just gets better when you have to worry about taxes. I have seen a few people get in trouble for not knowing what to do. great advice

  • Financial Advice for Young Professionals says:

    Wow, just another cost to getting divorced. I’ll make sure I choose wisely 🙂

  • Mihir @ Money Monk says:

    Hey this is really informative one. I was unaware that, even divorce can also affect one’s taxes badly! And your bottom line is very true, we have to educate own self to manage own taxes and matters.

  • Felicia says:

    The cost of divorce is staggering, if contested, which is usually the case, but the cost to the children can’t be measured. Maybe a long, relaxing, and romantic stay on an island would changed perspectives and choices.

  • david says:

    Divorce brings so many disturbing things with it.

    Losing tax benefits is like losing money straight out of your pocket.

    When I started having someone else do all of my product shipping for me, I found that I lost 55 center per mile that I was writing off previously. That seriously adds up over the course of a year. Costs went way up.

  • Lance@MoneyLife&More says:

    Divorces are never fun and taxes can be painful too. Sometimes it helps to hire a CPA for a year or two after to help you understand all of the implications and they might save you some money too.

    • david says:

      Hi Lance, I am not divorced but I can tell you from personally experience that a CPA can save you a lot of money.

      They know exactly the correct way to file your taxes legally and get all the deductions that you are entitled too. I saved a lot in my first year with a CPA. and in addition, I sleep better knowing that my taxes are always filed correctly.

      There is a lot to be said from using a CPA to do your taxes. Yes, it costs more, but in my case, the savings are even greater.

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