Taxes and Divorce

If you are ending a marriage, you are likely feeling a lot of sadness, confusion, dissatisfaction, and unhappiness. In addition to all the emotions that arise in the face of separation and divorce, you may be wondering about how this will impact your taxes as you prepare to file.

What happens when the IRS views you as a couple until you obtain the final decree of divorce or separation? How do you handle your taxes as a couple navigating separation and divorce? Let’s explore the answers to these questions.

Advice from the IRS

The IRS recommends that you update your tax withholding information. Start by filing a new W-4 form. Known as the Employee’s Withholding Certificate, this document can be obtained through your employer. Make use of the IRS Tax Withholding Estimator on the IRS’s website to ensure that you report the correct amount of tax to withhold on the new form.

Think about whether you anticipate receiving alimony or some other form of payment. If you do receive alimony, it is required that you make estimated tax payments, so keep that in mind.

Last but not least, make sure you claim your children on your tax return if you have custody of them. Now, if you have arranged a custody agreement where each parent has equal custody of the children, have a conversation with your former partner and decide which one of you will claim them on a tax return. Often, they are taken as a dependent in alternate years.

Details to keep in mind

If you and your former partner cannot agree on certain matters, you can refer to tiebreaker rules, which can be found in Publication 504, Divorced or Separated Individuals. Don’t forget that child support payments are not deductible by the payer, but at the same time, they are not taxable for the payee.

Also, not all payments under a divorce or separation instrument — e.g., a divorce decree, a separate maintenance decree, a written separation agreement — are regarded as alimony or separate maintenance. Keep in mind that the following situations are not included:

Child support.
Non-cash property settlements.
Your spouse’s community property income payments.
Payments for the sake of keeping up the payer’s property.
Use of the payer’s property.
Voluntary payments.

Now, if a divorce or separation instrument requires alimony and child support, child support comes first. This means the payments are recognized as child support first, and if any money remains after child support duties are fulfilled, then that money is regarded as alimony.

If you have property transfers to deal with, know that the IRS does not recognize any gains or losses as part of those transfers. you might have to report the transaction as part of a gift tax return if applicable.

Generally speaking, a payment is considered alimony or separate maintenance if you and your former spouse do not file a joint return.

The same is true under the following circumstances:

If the payment is in cash.
If the payment is made via check or money order.
If you and your spouse are not members of the same household.
If you are legally separated and the payment is not treated as child support or a property settlement.

Whatever you do, make sure you properly report all eligible alimony or separate maintenance payments on your tax return. There have been changes in the law recently that affect the deduction of alimony. Consult with a tax CPA to understand how this may affect your personal situation.

Do you have questions?

Count on your experienced team at Ericson, Scalise & Mangan, PC to provide you with sound guidance for your Estate Planning, Elder Law, Real Estate, Probate, Trust & Estate Administration, and other legal needs. For assistance, contact us today at (860) 229-0369, or email us at info@esmlaw.com.