Navigating taxes during and after divorce can be complicated, especially when it comes to new filing requirements and understanding financial obligations. Figuring out how to appropriately file taxes with this significant life change is not a task one should face alone. In this blog post, we’ll cover everything you need to know about filing taxes during and following your divorce.
Filing Taxes During Divorce
Your marital status on December 31 determines your filing status for that year. Depending on when your divorce is finalized, you have options while filing your taxes.
If you are not yet divorced by the end of the year you have two options when filing your taxes:
- Joint return
- Married filing separately
Spouses must agree to file jointly and it can provide a higher standard deduction by combining incomes. If you decide to file jointly, you will want to decide on how you will split or apportion a refund or tax liability. In this scenario, you can draw up a Stipulation and Order. This order is an agreement with your ex and will be signed by a judge.
Married Filing Separately
However, if the divorce is contentious and communication between spouses is difficult, it may be beneficial to file separately. In this case, you may be eligible for head of household filing status.
Head of household applies if the following are true:
- Your spouse did not live in your home during the past six months
- You paid more than half the costs for keeping up your home for the year
- Your child lived in your home for more than half of the year
- You are able to claim exemption for the child living with you
Filing taxes can become overwhelming during a divorce. Without knowledge of the separate assets, filing taxes separately or jointly can be problematic. Especially if the divorce is contentious, seeking professional advice from a lawyer is essential to receive the desired outcome when taxes are filed during divorce.
Filing Taxes After Divorce
After divorce, your filing status will change and give you a few options to consider depending on your situation. In addition, you may need to file a new Form W-4 with your employer to claim the proper withholding.
If you are divorced by December 31, you may file as the following:
- Head of household
- Jointly with your new spouse if you are remarried by the end of the year
How do Divorced Couples Claim Dependents?
You can continue to claim your child as a dependent on your tax return if you are the custodial parent. Meaning that the child has lived with you for a longer duration of the year. However, it is possible for a non-custodial parent to claim a child as a dependent if the custodial parent consents.
- Head of household filing status
- Child and dependent care credit
- Exclusion for dependent care assistance benefits
As of January 1, 2019, alimony payments are no longer tax deductible by the person making the payment. In addition, the individual who receives the payment does not have to report it as taxable income either.
The IRS does not consider the following divorce payments alimony:
- Child support
- Non-cash property settlements
- Payments to keep up/use the alimony payer’s property
- Voluntary payments not required under the divorce decree
Property Transfers After Divorce
When it comes to property transfers, the recipient doesn't pay tax on that transfer. However, if you sell any assets after the divorce, both spouses must meet the two-year ownership-and-use tests in order for each spouse to exclude up to $250,000 of gain on their individual returns.
It's also important to note that even if your divorce judgement or agreement allocates tax liability to one spouse, both spouses are still liable for the entire amount due. Therefore, it is essential that you update your Form W-4 with your current marital status so that your employer knows how much money should be withheld from each paycheck.
Filing taxes during and after divorce can be complex. To make sure your filing is efficient, working with a divorce attorney is recommended. Our divorce attorneys know the laws related to your marital status and taxation requirements. We have knowledge on which deductions are qualified or disallowed under the law, making sure you don’t miss out on any financial benefits you are entitled to. Working with our attorneys at Sullivan Law & Associates gives you peace of mind that someone is looking out for your best interests throughout the divorce process.
Do you have questions about tax filing during or after divorce? Call us today at (949) 565-2793 or contact us online.