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Understanding the Tax Implications of Divorce

Posted on in Divorce

Naperville divorce and taxes attorneyCouples will need to work out many issues during the divorce process, including child custody, division of assets, spousal maintenance, and/or child support payments. In addition to addressing the legal issues involved in dissolving the marriage, these decisions will also affect each party’s income taxes for that year and going forward. If you are considering divorce or have already begun the divorce process, it is important to understand how the decisions made will impact you when it is time to file your taxes. 

Filing Status

Married couples can report their income, exemptions, deductions, and credits on one tax return by selecting the “married filing jointly” status on their tax return. Couples will often pay less taxes if they file jointly instead of separately. If you are separating from your spouse, and the divorce has not been completed as of December 31st, you can still file your taxes as “married filing jointly” for that year. In the year in which the divorce decree is final, you will no longer have the option of filing jointly. If you and your significant other are still in an amicable relationship during the divorce process, you may wish to consult with a financial advisor to determine if you should take advantage of the ability to file jointly while you still can. 

Maintenance

Spousal maintenance, or alimony, is a common element of many divorce proceedings. For divorces completed prior to December 31, 2018, maintenance is deductible on a tax return for the payor and must be reported as taxable income for the payee. For divorces finalized on or after January 1, 2019, that “divorce subsidy” will no be longer available. 

The IRS requires certain criteria to be met in order for alimony to be tax-deductible. The requirements are: 

  • The payment is made in cash.
  • The divorce decree needs to state the payment is specifically for maintenance. 
  • The former spouses are not residing in the same household when the payments are made. 
  • A payor spouse is not required to make any payment (in cash or property) after the recipient spouse is deceased.
  • The alimony payments are not considered child support.

Children

A child can be claimed as a dependent on a tax return by the custodial parent. The custodial parent is the parent the child has lived with for a longer period of time during that year. Alternatively, the non-custodial parent can claim the child as a dependent as long as the custodial parent fills out IRS Form 8332 or a similar statement affirming they will not claim the child. If there are multiple children, parents can split the exemptions. 

Contact a Wheaton Divorce Attorney

If you are looking for a compassionate and knowledgeable attorney to help you work through the tax implications of your divorce, Anderson & Associates, P.C. can provide you with the legal guidance you need. Our DuPage County divorce lawyers can help you understand how the circumstances of your divorce will affect your taxes in the future. Contact us today at 630-653-9400 for a free consultation.

Sources: 

https://www.irs.gov/publications/p504

https://turbotax.intuit.com/tax-tips/marriage/getting-divorced/L20NC66cf

http://www.ilga.gov/legislation/ilcs/documents/075000050K503.htm     

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