Separation and Divorce Tax Considerations

Taxpayers who are considering or are already in the process of ending their marriage should consider that there are plenty of financial considerations besides a simple separation of assets. Whether legally separating or divorcing, there are several tax implications to consider:

Timing – The IRS considers a couple to be married until they get either a separate maintenance decree or a final divorce decree. Until there is an official court ruling, the couple will be viewed as a married couple for tax purposes.

Withholding – Taxpayers should fill out a new Form W-4 with their employer when they divorce or legally separate from their partner. (You should also fill out a new Form W-4 for other life events, such as marriage, birth of a child, etc.)

Alimony – For taxpayers divorcing now, alimony payers cannot deduct alimony paid from their income and alimony receivers are not required to include alimony received as income. The rules are different for divorce or separation agreements executed before 2018. Alimony paid under those older agreements do allow alimony payers to deduct alimony paid from their income and require alimony receivers to include alimony received in their income.

Child Tax Credit – Child custody is already a contentious issue in a divorce or separation. The child tax credit can only be claimed by the parent who has custody of the child. There are tie-breaker rules for parents who split custody 50/50 and can’t agree who gets to claim the children. Certain situations allow a parent with custody to voluntarily relinquish the credit to the non-custodial parent. (For example, in exchange for greater child support payments from the non-custodial parent as agreed in the divorce or separation agreement.)

Schreiber Accounting and Advisory can help you understand the tax implications of divorce or separation as they apply to your unique situation with comprehensive tax planning and preparation services. Contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.