Effect of Divorce on Taxes

Divorce or dissolution of marriage affects several tax issues. To understand the full impact of divorce on your taxes, you should consult with your tax advisor for advice on your financial situation. In general, divorce may affect the following areas:

  • Property transferred between spouses at the time of a divorce usually doesn’t have income tax consequences, but there are exceptions, such as when property is transferred to a trust or to a third party or when the property is used for a different purpose after the divorce than before. For example, if a car once used for business purposes is not used for businesses purposes after the divorce, this might have tax consequences.
  • Alimony or spousal support is considered income to the receiving spouse and can be deducted by the spouse paying it. Child support, however, is not income. Taxes on spousal support should be included in any consideration of what would be an adequate amount of spousal support.
  • The custodial parent can claim child-care credit for the children. The parents must determine which of them is entitled to claim tax exemptions for the children.
  • The filing status of the spouses will change at the time the divorce is final. The filing status for the year of a divorce is determined by the marital status on December 31st. You will be considered single for the whole year in which your divorce takes place, so you may want to time the final decree for the first part of a year if there are advantages to filing jointly for the last year of your marriage.

For more information about all of the factors that could affect your particular divorce and tax situation, consult a qualified advisor, such as a tax attorney, CPA or divorce attorney. You can also see the IRS Publication 504 Divorce and Separate Individuals for more information.