From property division to custody battles, divorce can be a challenging experience for any individual, no matter the circumstances. While couples undergoing a split may already have a handful of issues at the forefront of their minds, it is also important to keep mindful of how this could affect future financial processes – specifically effects on taxes.
First and foremost, you will need to make changes to your filing status before submitting for the upcoming tax season. If your divorce is finalized by December 31 of the filing year, the IRS will consider your status as “Single.” Single filers may choose to file under “Head of Household,” which offers a higher standard deduct if you can claim a dependent who lives with you for the majority of the year, and you provide the majority of upkeep for the home.
It is not uncommon for many divorce settlements to require one party to make alimony payments. As with other payments or investments handled in divorce, there is the possibility that alimony payments may qualify as deductible on your taxes, but due to tax reforms, this is dependent on when your divorce was finalized.
If your divorce was finalized by Dec. 31, 2018, payments can be deducted from taxable income for the paying individual, while recipients must list them as income. This deduction is not applicable for taxpayers whose divorce was settled after this date.
Child support payments are not and have never been considered tax-deductible or claimable. With that said, there are additional tax breaks that may be available to you depending on your custodial status post-divorce.
Following the divorce, the custodial parent is able to claim the child as a dependent and will receive the associated tax credit. However, it is possible for the noncustodial parent to claim the tax credit instead with the custodial parent’s consent and by filing the required paperwork. In this case, the custodial parent will need to complete tax form 8332 so that the noncustodial parent can include it with their filing.
In this scenario, the custodial parent will still have several options for claiming a credit on the child, including the “Head of Household” filing status.
Workplace Documents & Benefits
If you are employed at the time of divorce, you must collaborate with employers to make necessary changes to workplace financial documents, such as W4s, and workplace benefits like retirement funds, insurance policies, etc. These changes may include but are not limited to marital status, bank account information, mailing address and more.
Depending on the settlement terms, you may also be partially entitled to your ex’s pension. If this is the case, the court may issue a Qualified Domestic Relations Order (QDRO), which supplies pension admins with details on how the account payments should be handled.
Bleecker Goes Beyond
Divorce can be an arduous process, no matter who you are. At Bleecker Family Law, our team of experienced legal representatives is here to help support you and relieve stress in your time of need. Contact our reliable team of compassionate lawyers today if you and your spouse are considering divorce or are in need of mediation services.