Divorce changes so many things in your life, but one of those you may not be thinking about is how it affects your taxes. Here are some common tax issues you will want to address during and after a divorce:
You can file jointly until the divorce is final.
If you have separated and are in the process of getting a divorce, you may already consider yourself to be single. However, the IRS does not. You may file your taxes jointly if you are legally still married on the last day of the tax year. You may also file as married filing separately or, in some cases, as head of household. Since filing jointly has some big tax benefits, you may want to continue to do so until the divorce is final.
Know the new tax rules concerning alimony.
Under the new tax law, for all divorce agreements entered into after Dec. 31, 2018, an ex-spouse paying alimony will no longer be able to deduct it from his or her federal income taxes. The ex-spouse who receives alimony will potentially benefit since he or she will no longer have to declare alimony as income and pay taxes on it. In short, this new change in the federal tax law shifts the tax burden of alimony from the payee to the payor.
Consider negotiating the child dependency exemption.
Typically the custodial parent will be able to claim a child as a dependent on his or her personal taxes, but there are exceptions. Since the dependency exemption provides a significant tax break, a noncustodial parent may wish to negotiate the dependency exemption as part of the settlement agreement. If divorcing parents agree to split the exemption — each taking it every other year, for example — the custodial parent will need to sign a Form 8332 that will be attached to the noncustodial parent’s return.
Pay close attention to QDRO language.
A QDRO — qualified domestic relations order — is an order signed by a judge that details how qualified retirement plan benefits are to be split between a divorcing couple. Your retirement plan administrator will enforce it, and many plans have exact language requirements that must be met in order to make the QDRO enforceable. There are tax consequences to the distributions that you should discuss with your divorce attorney before you sign off on the agreement.
Some legal fees are deductible.
While most of your legal fees for your divorce are not deductible, the IRS does allow you to deduct any legal fees that arise from receiving tax advice from your divorce lawyer. In addition, any legal fees connected with the collection of alimony are also deductible. Ask your attorney to break out deductible expenses on any billing statement so you can back up your deduction.
You can rely on Cistaro Law to skillfully negotiate and mediate your issues to a satisfactory resolution. Should the need arise, you can also count on our experience for being aggressive litigators if the situation calls for a more assertive response. Contact us today for your free consultation.
