It’s rarely fun to go through a divorce. The financial implications that come with divorce can be challenging enough to deal with, without the addition of tax issues. However, the unfortunate reality is that divorce comes with its own set of tax considerations. If you are going through a divorce right now, or if you are recently divorced, here are 6 things that you need to know:
1. Your Filing Status Has Changed
It’s important to understand that you filing status is determined by your marital situation on December 31. So, if your divorce went through on December 30, you can’t file jointly — even though you were married for pretty much the entire year.
Your filing status is either single, or it’s head of household, depending on your dependent situation. Head of household comes with certain favorable implications that you won’t see when filing singly, so it makes sense to find out if you qualify.
2. Who Claims the Exemptions for Children?
You and your former spouse both can’t claim exemptions for your children. This means that you will need to know who has the “right” to claim the exemptions. It might be in the divorce decree. If it’s not, though, the person with primary custody. If you have joint custody, you have to figure out how many days each of you had the children, and the person with the most days gets the exemptions.
3. Understand How Support Affects Your Taxes
If you pay alimony to your spouse, you can deduct the amount paid. However, child support is not tax deductible. If you receive alimony, you have to count it as income when you file your tax return. However, you don’t need to claim child support you receive as income. There are ways to include child support with an alimony payment in what is called “family support.” However, before you agree to such an arrangement, have your attorney review what will do you the most good overall.
4. Do You Need a Signed Form 8332?
There are times when you might be able to claim a child as an exemption, even if he or she lives with you less than six months out of the year. However, in order to make it work, your spouse needs to sign a Form 8332. If this is going to be problematic, you need to make sure this is included in the divorce decree. Because of quirks like this, it’s important to consider tax implications before you sign divorce papers.
5. Legal Fees Related to the Divorce
Some of the fees you pay for legal advice are actually tax-deductible. Tax advice you pay for to help you figure out the consequences of your divorce are deductible. You can also deduct fees that you paid to lawyers in your quest to obtain your rightful alimony agreement. Make sure to review your fees and break them out according to type, since some of them might come with tax benefits.
6. Change Your Withholding
You might need to change your withholding information, depending on how your situation has changed. The number of exemptions you have, along with your filing status, will change your tax liability, and that means you might want to adjust your withholding at work to reflect the new situation. You’ll need to fill out a new W-4 in order to make these changes.