Divorce and Taxes

Divorce and Taxes

Filing Status.

Filing status is based on your status as of December 31. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose Married Filing Jointly as your filing status. If you are still married at the end of the year (your divorce is not yet finalized), then you must file as Married Filing Jointly or Married Filing Separately, or Head of Household, if qualified. You cannot file as Single if you are married.

Joint Responsibility.

You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns.

Name Change.

If you changed your names because of divorce, be sure to report the change to your local Social Security Administration office before filing your tax return. The name you enter on your tax return must be the same as what is on your Social Security card.

Exemptions.

If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse’s exemption. This rule applies even if you provided all of your former spouse’s support.

Dependents.

In most cases, a child of divorced or separated parents is the qualifying child of the custodial parent (the parent with whom the child resides for the greater number of nights during the year). If the parents divorced or separated during the year and a child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year.

Estimated Tax.

If you made joint estimated tax payments for the current year and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse’s individual tax as shown on your separate returns for the current year.

Property Settlements and Transfers

If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you will not recognize gain or loss. This is true even if you receive cash, release of marital rights, assumption of liabilities, or other consideration for the home.

Incident to Divorce.

Transfers are incident to divorce if they are:

• Made within one year after the date the marriage ends, or
• Related to the ending of the marriage—made under an original or modified divorce or separation instrument within six years after the date the marriage ends.

Transfers that do not meet these conditions are presumed not to be related to the ending of the marriage.

Sale of Residence.

For purposes of the sale of home exclusion of gain, an owner is treated as using the property as his or her principal residence during any period that use is granted to a spouse or former spouse under a divorce or separation instrument.

Deducting Costs of Divorce

Generally, attorneys’ fees and other expenses paid in connection with divorce are not deductible.

Exceptions:

• Fees paid to determine tax or for tax advice on federal, state, or local taxes of any type are deductible.
• Fees paid to get or collect alimony are deductible.
• Fees paid for a spouse or former spouse are not deductible but may qualify as alimony.

Alimony

Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. It does not include voluntary payments not made under the instrument. Alimony is deductible by the payer and must be included in the recipient’s income. Agreements entered into after December 31, 2018, are not deductible by the payer and not included in income by the recipient.

Designating Payments as “Not Alimony.”

Spouses can agree not to treat otherwise qualifying payments as alimony. A provision clearly instructing that the payment is not to be treated as alimony must be included in a divorce or separation instrument or in a written statement signed by both spouses that refers to a previous written separation agreement. If spouses are subject to temporary support orders, the designation must be in an order. A copy of the written instrument must be attached to the recipient’s return.

Payments to Third Parties.

Payments to third parties under a divorce or separation instrument can qualify as alimony. Payments are treated as received by the spouse and then paid to the third party. The recipient can claim deductions for items paid with the alimony.

Home Occupied by Spouse.

If, under the terms of a divorce or separation instrument, one spouse occupies a home that belongs to the other, the owner’s payments for mortgage, real estate tax, insurance, and repairs are not alimony. Payments for utilities may be alimony. Rent-free use of the property is not alimony.

Child Support

Child support is not deductible by the payer or taxable to the recipient. Payments specifically designated as child support in a divorce or separation instrument are not alimony. Payments not specifically designated “child support” are treated as child support if they are reduced either:

• On the happening of a contingency relating to a child (reaching a specific age or income level, leaving school, marrying, becoming employed, dying, leaving the household, etc.).
• At a time that can be clearly associated with such a contingency.

Underpayment of Alimony or Child Support.

If alimony and child support are both required under a divorce or separation instrument, and payments are less than the total required, payments apply first to child support and then to alimony.