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Divorce and Taxes: What Women Need to Know about Filing Taxes After a Divorce

by Jeff Landers on February 18, 2013

TaxesJeff Landers is a GoGirl Finance expert and founder of Bedrock Divorce. Jeff’s book, Divorce: Think Financially, Not Emotionally: What Women Need To Know About Securing Their Financial Future Before, During, and After Divorce  is currently available on Amazon. 50% of all profits from the sale of each book will be donated to the Bedrock Divorce Fund for Abused Women, Inc., a 501(c)(3) nonprofit charity whose mission is to help female victims of domestic abuse and the organizations that support them.

This coming month can be tumultuous on many fronts, and for women going through divorce, tax season can be particularly difficult–both emotionally and financially.

In an effort to calm at least part of the storm, here are answers to some of the tax questions most divorcing women must grapple with:

I’m getting a divorce. What is my tax filing status?

Your federal income tax filing status is set by your marital status on the last day of the tax year.

So, if you are still married on December 31st, then you are considered married for the entire year. Likewise, if you are divorced on December 31st, then you are considered divorced for the entire year.

That part is relatively easy, but if you are legally separated, things are more complicated. Here’s why:

The IRS usually follows state law for determining marital status. In other words, whether or not you are considered married or unmarried will depend upon complicated laws at both the state and federal level.

For example, according to tax law, an individual legally separated from his/her spouse under a decree of divorce or a decree of separate maintenance shall not be considered as married. But, not every state allows for a decree of separate maintenance; if you live in one of those states, you are still considered married until your divorce is final. You need to ask your attorney and/or tax advisor whether your current legal status meets the definition of a decree of separate maintenance. 

If you’re legally divorced, you must file as single or head of household. But, if you are still legally married, the IRS always allows you to file either jointly or separately.  Tread carefully, however. For many, that choice can be a double-edged sword.

On the one hand, if you choose to file separately, you cannot be held responsible for your husband’s unpaid taxes. On the other hand, if you choose to file separately, you may miss out on key benefits and deductions. (A married filing jointly return is generally the most advantageous filing status for most people.)

What happens if we file jointly, and there’s an overpayment (or underpayment) of taxes?

If there is an overpayment of tax, then your attorney should seek to have allocated to you some portion of the overpayment, or at least confirm in writing it’s a marital asset to be considered in the settlement or at trial.

If there’s an underpayment–because, say, your husband takes aggressive tax positions or is in a cash business and doesn’t accurately record his income–you may not want to join in the joint returns since you can be held liable if the IRS comes after the parties for underpayment of tax.

Can I file as “head of household?”

Filing as head of household will typically result in a lower tax bill than filing as single, but this designation has strict requirements. To qualify as head of household you must:

  • maintain a household for your child (even if you do not claim them as a dependent)
  • be unmarried at the end of the year or living apart from your spouse for more than six months
  • provide more than half the cost of maintaining the household
  • be a U.S. citizen or resident alien for the entire tax year

In addition, the household must be your home and generally must also be the main home of the qualifying dependent (i.e., they live there more than half the year).

Am I allowed to claim an exemption for my children?

The custodial parent is entitled to the exemption for children, although in some cases, this exemption can be traded to the non-custodial parent using IRS Form 8332.

Are child support payments considered taxable income?

No. Child support is always tax-neutral, meaning it can’t affect your taxes in any way. Child support payments are not taxable income for the parent receiving the support. In addition, they are not tax deductible for the parent paying the support.

Are alimony payments considered taxable income?

Yes, most of the time. Alimony payments are almost always taxable income for the recipient–and they are tax deductible for the payor. However, the IRS is very strict regarding what qualifies for the alimony deduction. For example, if you and your husband continue to share a residence after the divorce, any alimony payments made during that time cannot be deducted. Also, the alimony payments deducted must be as outlined in a written separation or divorce agreement.

In some cases, the husband and wife might agree that alimony will not be considered taxable income to the recipient and tax-deductible to the payor. If that language is included in the final divorce decree, then that income will not have to be declared by the recipient. Of course, the payor will not be allowed to deduct those payments, either.

 

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