September 22, 2022
8 Critical Tax Consequences to Consider After a Divorce
Written by Erb Legal LLC
Ending a union can be stressful. Even if the process has been pleasant, it can be easy to overlook aspects of your life that may be affected. After a divorce or dissolution, your taxes will change, maybe in ways you won’t expect.
Learning how a divorce may affect your next tax cycle could prevent you from getting fined or criminally punished.
#1: When Your Divorce Finalizes Will Affect Your Filing Status
Although your separation might be amicable, knowing when your divorce is finalized will significantly impact your filing status. Per tax law, the final day of the tax year is December 31. If your divorce is finalized on or before the final day of the year, you won’t be able to file a joint tax return. If your divorce is finalized in the new year, you could be eligible to file a joint tax return. If you’re eligible but decide you don’t want to file jointly, you can file as “married filing separately.”
#2: Who Gets to Claim Dependents When Filing After a Divorce?
After a divorce, it can be confusing whether you can claim any shared children on your taxes. Generally, the custodial parent can claim the children on their taxes, and that title will most likely be established in the divorce agreement.
You most likely will be able to file as a “head of household,” while the non-custodial parent will file as single.
#3: Do Alimony or Child Support Affect Taxes?
After a divorce, one spouse will typically be expected to pay their ex, whether it’s to help care for their children or to help them maintain a standard of living while they get back on their feet. Whether you’re paying alimony or child support, you should know how your taxes could change while making those payments.
Are Alimony and Child Support Taxable?
Before 2018, child support payments were taxable for the payee and deductible for the payor. For alimony payments before 2019, the payee reported alimony as income and paid the requisite taxes, while the payor could deduct the payments as long as they filed returns separately and the payor made payments in cash.
After 2018 and 2019, payments are no longer tax-deductible or taxable for payors or payees, respectively. Basically, if you expected a tax break for making child or spousal payments before, that break is no longer available. If you’re receiving alimony or child support payments, that income is no longer taxable.
#4: Taxes Could Affect Child Support Payment Schedules
If a divorce agreement includes child support between the ex-spouses, the court will consider several factors to determine the amount paid and how often those payments are made. Income tax is one of the key factors considered for setting that payment schedule, along with any other court-ordered support for other children, mandatory work-related deductions, and the parents’ combined gross income for the last three years.
#5: You Could Be Liable for Some of Your Ex’s Debts
Knowing what you’ve agreed to tax-wise in your divorce agreement is critical in avoiding unexpected debts. Your ex could owe back taxes incurred during your marriage. If they fail to pay, the Internal Revenue Service (IRS) could come after you for that debt. As a creditor, they only care about the debt and may not recognize the divorce decree, which is an agreement between you and your ex, based on “joint and several” liability.
If the IRS requires you to pay your ex’s debt, you could ask the court to enforce the divorce agreement to get your money back.
#6: Dividing Property Might Not Impact Your Tax Claim
Ohio divorces will have ex-spouses divide property equitably, and in most cases, this event should not involve taxes. The IRS has a rule allowing property transfers between spouses to be tax-free.
However, some retirement savings plans could be subject to income tax. You might need to pay regular income tax if you’re withdrawing a lump sum from a retirement plan rather than rolling it into a new account. It should be noted you won’t have to pay the normal early-withdrawal fee if you’re younger than 59.5.
#7: Are Attorney Fees Tax-Deductible after a Divorce?
Divorces are costly, and looking for any breaks you can get is a smart move. Some attorney fees could be deductible except for those directly related to the cost of getting a divorce. For instance, fees for actuaries, appraisers, or accountant services could be deductible.
#8: Make Sure Your Name Matches Government Records
This may seem obvious, but your name should be the same name the government has on its files. If you changed your name after marriage, determine what name you should use to file your taxes. This is doubly important if you’re filing electronically: the name on the e-file must match the Social Security Administration and the IRS or risk getting rejected. You may be forced to file a paper claim if your return is denied, which could delay your refund.
Learn How to File Taxes After a Divorce with an Experienced Family Law Attorney
Taxes are complicated enough without a divorce thrown into the mix. It’s easy to make mistakes when you aren’t aware of tax law, and the legal system isn’t likely to forgive you because of ignorance. Having a knowledgeable family law attorney on your side can ease those worries.
Turn to Erb Legal, whose years of experience in Ohio make them superior advocates. They’ll listen to your case and help you move forward while providing professional service. Contact our office for a free, no-obligation consultation. Call (330) 869-9007 to schedule an appointment.