Frequently Asked Questions After Divorce
A major life event such as divorce can have many tax implications. In general, alimony payments are deductible by the paying spouse, but child support is not. If you are the receiving spouse, spousal support payments are taxable provided they qualify as “alimony” under tax rules. Child support, however, isn’t deductible by the paying spouse, and neither is it taxable to the recipient. there are specific nuances to how alimony and child support must be structured to ensure that each qualifies as such. You are also entitled to claim a dependency exemption if you have legal custody of the child(ren). However, you also have the right to waive this exemption and allow the noncustodial spouse to claim it.
Some additional issues:
- When property is divided, the tax effects are not immediate. Property transferred between the spouses does not result in a taxable gain or loss to the transferring spouse. However, the receiving spouse will take the same basis (cost) in the property that the transferring spouse had. It is possible that at a later date the receiving spouse may have to pay taxes, if/when the property is sold.
- How you handle your retirement plans such as Individual Retirement Accounts or 401(k) can have significant tax implications.
- If there are business interests transferred due to the divorce, it is highly important to ensure certain tax attributes are not forfeited.
- If can get even more complicated if you and your spouse live in different states given that divorce laws differ from state to state.
This is not intended to be an exhaustive list of tax implications. Every person’s situation is unique, and we always advise seeking the services of a qualified tax preparer.