What are the Tax Implications of Divorce?
Experienced Franklin divorce attorney outlines what’s at stake?
By the time you start the divorce process, you may have thought about a lot of things in detail, such as who will keep the house or how you will split the profits if you decide to sell it, how you will go about changing back to your maiden name, or even how you will manage social interactions with your joint friends. But you might not have even thought of some of the things that can have a big impact on your bottom line year after year, like your taxes.
You don’t have to pay any tax when you get a divorce, but there are ways that your tax obligations or credits can change significantly. Your divorce can impact your tax obligations, from the residential arrangements for your children to the way you divide your assets. I advise my clients to consult a tax expert on these issues.
Here are a few of the ways that divorce impacts taxes:
- Filing status. Right away, you will experience a change in the amount of tax you pay because of your filing status. There is a benefit to filing jointly as a married couple. A single person usually finds their taxes are higher than they were when married, and that there is a bigger deduction for their paycheck.
- Tax bracket. One of the tax benefits of divorce, in most cases, is that you will be in a lower tax bracket as a single person, which may lower the amount of tax you have to pay.
The tax law related to children changed significantly in 2018. I am
still trying to understand all the changes in the law here. But
here are some of them:
- The tax exemption that you used to get when you claimed your children is gone effective the 2018 tax year. So there is no longer any reason to complete the section of the parenting plan regarding who claims the children to get the tax exemption.
- The primary residential parent* can file as head of household and take the increased standard deduction of $18,000. The parent filing as single can take the standard deduction of $12,000. (*This is defined by tax law based on the number of nights the child slept in the parent’s home. This is not the same as “days” under the child support guidelines, so it may not be the same as the number of days stated in your parenting plan.)
- The primary residential parent can take child and dependent care credits, which seem to be more than those allowed in tax years prior to 2017.
- The parent claiming the children can take the child tax credit which doubled to $2,000 per child under the age of 17, but only if the parent’s income is less than $200,000.
- The primary residential parent whose income is less than $54,000 can take the earned income credit, which is about $3400 for one child and up to $6300 or more for three or more children.
- Child support. Unfortunately, you cannot deduct child support payments from your taxable income. Fortunately, you also cannot be taxed on money you receive for child support.
- Alimony. There has been a big change in the law effective January 2019. For divorces granted beginning January 2019, there is no tax on alimony received, and the payment of alimony is not tax deductible.
It is best to speak with your divorce attorney and a tax expert to understand the rules and how they apply to your circumstances specifically.
There are other ways that your divorce can run up against the IRS. For example, if you are ordered to pay alimony or child support and you fail to do so, the IRS can direct your tax refund to the ex-spouse who is owed an arrearage. There are also many complex tax rules related to the sale and transfer of property, which could include your house, rental properties, or business. It’s important that you consult with your divorce attorney and an experienced tax expert to understand what the implications are for your case specifically.
If you aren’t a tax professional, you shouldn’t try to handle the complex tax issues that are tied up in divorce on your own. You should consult with the professionals who will help you protect your interests. I’m Judy A. Oxford , an experienced Franklin divorce attorney, and I advise my clients and help them to protect their rights during their divorce and fight to get them the best resolution possible. Call my office today at (615) 791-8511 to start talking about your divorce, or use the secure online form on my website to schedule a free consultation.