Divorce or separation is not something I wish on anyone or like to see happen, but it is a reality of today’s world. I have had clients, unexpectedly, find themselves trying to decide whether to get divorced or legally separated. Whether you are still considering it or find yourself in that situation, please remember that there will be changes to your tax situation. Lets explore:
- If you are simply separated, your filing status is Married filing Separate NOT Head of Household. People make that mistake all the time and end up getting audited or repaying back money to the IRS.
- If there is a final divorce decree, you filing status is single or Head of Household (if you have dependents living with you that qualify you for that filing status).
YOU CANNOT DEDUCT OR REPORT:
- Child Support: If you are paying child support, please note that it is NOT taxable. For starters, there is no provision on ANY tax form for you to report and claim it. If you come across a tax professional who is encouraging you to sneak in that amount somewhere, RUN! Please, do not claim this, it could put you in trouble with the IRS. Conversely, if you are receiving child support, it is not taxable. It is not income – it was not meant to be.
- If you were married to someone and contributions were made to that person’s IRA, contributions that would usually be deductible on a tax return, when you get divorced, you cannot deduct the contributions made to that person’s IRA.
- If property is transferred, that is not reportable or taxable, even as a gift tax, as it usually meets one of the following exceptions:
Your transfer of property to your spouse or former spouse isn’t subject to gift tax if it meets any of the following exceptions.
- It is made in settlement of marital support rights.
- It qualifies for the marital deduction.
- It is made under a divorce decree.
- It is made under a written agreement, and you are divorced within a specified period.
- It qualifies for the annual exclusion.
YOU CAN DEDUCT AND SHOULD PAY TAXES ON:
- Alimony: If you receive alimony, that is income. You MUST report this. It goes on Line 11 of a form 1040. If you are tempted to leave it off your taxes, please note that the person paying alimony also deducts it on their tax return and they have to report the SSN of the person they are paying alimony to. Reporting alimony paid goes on line 31A of the 1040.
- You can also deduct the fees you paid to get tax advice. Your legal fees for getting divorced are not deductible, unless you know the portion of the fees that are for advice on getting alimony. Yea, the IRS is weird like that. The reason is that this is money spent to make income
- If previously joined property, like a home is sold, you need to report your portion of the resulting gain/loss.
OTHER THINGS TO CONSIDER:
- If you changed your name when you got married and are going back to the last name you had before marriage, ensure that you report this name change to the SSA. If you file your return using your previous last name and all they have on file is your married name, your return will be rejected and complications may arise.