Are you considering divorce but haven't thought about the tax implications? Now that you've gotten serious about your relationship with your current spouse, it's time to get serious about your relationship with the Internal Revenue Service (IRS).
Here are a few things you'll want to keep in mind about taxes and divorce:
What's your filing status?
Whatever your marital status happens to be at year's end will be your status on your tax return. If the divorce was finalized by Dec. 31, then you'll file tax returns separately from your ex. If you have sole custody of your children, then you might also be able to file as the head of household. Even if you were married all the way up to Dec. 31 and your divorce finalized on the last day of December, you will file as a single taxpayer unless you can qualify for head of household.
Are you paying or receiving child or spousal support?
The payer of child support cannot deduct those payments from his or her net annual income. However, the payer of alimony can deduct the payments from net income. Meanwhile, the recipient of child support does not have to pay taxes on the child support, but the recipient of spousal support will need to pay taxes.
Who gets to claim the kids as tax exemptions?
Usually, this person will be the one with primary custody. However, some spouses may agree to allow the spouse paying child support to claim the children as dependents by submitting a special form (Form 8332) to the IRS.
These aren't the only things to keep in mind with regard to the tax consequences of divorce -- particularly when it comes to a high asset divorce. However, if you educate yourself on tax laws, talk with your divorce lawyer and speak with a certified public accountant, you will be well on your way to understanding the unique tax consequences that your divorce presents.
Source: TurboTax, "10 Things You Need to Know About Divorce and Taxes," Ginita Wall, accessed July 26, 2017