Understanding Tax Laws and Divorce
Along with every other aspect of your life, divorce will also affect your yearly tax return.
Divorce affects nearly every aspect of your life, and it is understandable if tax matters are not the most pressing on your mind. However, divorce can have some tax implications, and it is important that you know what they are so that you comply with the laws and file your taxes appropriately. Divorce attorneys usually do not have specialized tax expertise, but I try to know enough to recognize when tax law could have an affect, and direct you to see a tax expert if necessary to get more specific advice. If you are considering divorce, or the process has already started, below are some of the most frequent tax implications that come up.
Filing Separately or Jointly
Whether you file jointly or separately will depend on when your divorce was finalized. If your legal status was “divorced” as of December 31 of the prior year, you must file tax returns for that year separately. If your divorce was not completed by December 31 of the prior year, you can still file a joint tax return for that prior year, even if your divorce was finalized in the new year.
Not everyone that is eligible to file jointly wishes to, however, and when that is the case, you can choose to file separately, but married. Likewise, if you cannot file jointly but still wish to reap some savings, you may be able to file as head of household, which may offer you larger standard deductions.
Anyone who is employed must fill out a W-4. This is so your employer can compute your Social Security and Medicare deductions that come out of your paycheck. When you were married, your deductions would have been a different amount. So, when you have gotten a divorce, you should update your W-4 with your employer. Many clients have reported that their individual tax rate went up when they got divorced.
Alimony and Child Support
Before December 31, 2018, alimony played a large role in tax returns. The spouse who paid alimony was allowed to claim it as a deduction on his or her tax return, and the spouse who received alimony was required to claim it as income. This law no longer stands. Therefore, if your divorce was finalized after January 1, 2019, alimony does not have the same impact on your taxes.
Child support works similarly to alimony, as it cannot be deducted on your tax return, and it cannot be claimed as income by either spouse.
It is important to understand which parent can claim the children as dependents after a divorce. The tax law has changed significantly in this regard since January 1, 2019. You should consult with your CPA to get advice that applies to your specific situation. As a general rule, the primary residential parent claims the children as dependents. This is the parent who has the most overnight visits with the child during the tax year. Divorce agreements typically state which parent is considered the primary residential parent. As a general rule, the parent who has primary custody of the children claims the earned income tax credit (EITC). As a general rule, the non-custodial parent does not claim head of household status. This impacts who can claim the work-related childcare expenses for the children.
Tax law can have an impact on your divorce
If you are going through a divorce, it is important you understand when tax law could have an impact. Call me, Judy A. Oxford, Attorney at Law, a Franklin divorce lawyer who can advise on your case. Call today at (615) 791-8511 or fill out the contact form online to schedule a consultation and get the help you need.