Peaceful Divorce

4 Issues You Need to Be Aware of When Filing Your Taxes After Divorce

When couples get divorced, they can be respectful and cooperate with each other, but that does not mean the IRS will make it easy for them.

Dividing property, and receiving alimony and other assets along with child support, can be complicated.

Division of Assets and Liabilities

  • The marital residence: Most of the time a quitclaim deed is not an obstacle to transferring the title from one spouse to the other spouse; who is on the mortgage is more important. If the mortgage is held jointly, and one spouse is going to take on the residence, they will need to get the mortgage in their name and get the other spouse’s name off of the mortgage. That means that the party taking over the residence will need to be able to qualify for the mortgage and get approved for a refinance of the mortgage. Issues to think about with the mortgage include whether they are just looking to refinance the outstanding balance of the mortgage or to take out cash and increase the mortgage balance.
  • Investment accounts: Investment accounts will need to be divided. That means considering not only the current value of the investment but also the cost basis. Without knowing the cost basis, one spouse may be taking on a tax bill they are not aware of.
  • Retirement accounts: Unfortunately, you and your spouse cannot just move money from an IRA or 401(k) because you privately agree to it. There is a legal procedure required to transfer the money, but it comes with the benefit of not being a taxable event at the time of transfer.

Who claims the kids?

Under current IRS regulations, you can no longer use a divorce settlement agreement to backup your claim of dependency. You now have to use IRS Form 8332, which is titled “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.” It will need to be signed by the custodial parent so that the non-custodial parent may attach it to the tax return. This can be done each tax year or it may be signed for a permanent change. There are significant tax implications, so you need to know what you are doing before it is done—or contact a financial professional.

What is your filing status?

Many couples don’t realize that their marital status is determined by their marital status at the end of the year. That will determine how you file your tax return; even if you and your spouse divorce at 11:59 pm on December 31, you’re still considered single or head of the household for the whole year.

Alimony and child support

Keep in mind that alimony is taxable to the spouse receiving it and tax deductible to the spouse paying it.

Alimony may present a shock to the person receiving it in the sense that he or she could possibly be in a higher tax bracket as a result of a receiving alimony or a filing status change.

Child support, by contrast, is not taxable to the recipient, and it’s not deductible for the person paying it.

As a best practice, I recommend that all taxpayers seek the advice of a financial professional—especially if they got divorced within the tax year. Certified Divorce Financial Analysts have the training and experience to walk you through the process so that you and your ex-spouse can lay a solid foundation for your post-divorce lives. To find out more, contact me here.  

Robert D. Bordett CFP, CDFA
Collaborative Practice and Mediation Services
888 U2AGREE (888.822.4733)

Views: 37


You need to be a member of Peaceful Divorce to add comments!

Join Peaceful Divorce

Become an affiliate of the Happily Divorced! book and audio program! Let Reformed "Killer" Divorce Attorney, Cynthia Tiano, and Dr. Max Vogt, Marriage and Family Psychologist, take you on an adventure into the lives of two families going through the divorce legal system - one doing "legal battle" and the other creating a "peaceful divorce". Learn how to create a Win-Win from their experiences...


Latest Activity

Robert D. Bordett, CFP, CDFA posted a blog post

What Is a Caucus?

One of the guiding values in mediation and collaborative law is transparency. It comes with the territory when one is trying to establish trust with two different parties. Sometimes an issue may arise that one party may wish not to discuss in front of the other. If they both agree, separate meetings may take place. These meetings are called caucuses.Caucuses can be…See More
Oct 22, 2019
Robert D. Bordett, CFP, CDFA posted a blog post

How Important Is the Budget in Divorce Planning?

I think everyone’s least favorite word is BUDGET. Why don’t we want to hear that word? Think about it: We’re asking ourselves to do something we don’t want to do — or worse yet, someone else is asking us to do it. While we might not like them, having a budget does help. In divorce planning — whether you are going to litigation,…See More
Sep 18, 2019
Robert D. Bordett, CFP, CDFA posted a blog post

21st Century Parenting Plans

I remember when the default custody arrangement had one parent as the custodial parent, and the other parent was known as the “Disneyland parent.” They had their children every other weekend, and maybe once during the week for dinner. Today it is more common to see joint parenting time consist of one week on, and one week off or “two-two-five-five” time,…See More
Aug 15, 2019
Robert D. Bordett, CFP, CDFA posted a blog post

Including a Financial Professional in Your Mediation

Very often, couples who are divorcing amicably, or who have straightforward financial situations, will forgo meeting with a financial professional while they go through mediation. Though this may seem logical on its face, “going it alone” may result in unnecessary hardship and inaccurate calculations.  It is easy to simply look at a tax table today and say “I am going…See More
Jul 30, 2019
Robert D. Bordett, CFP, CDFA posted a blog post

What About the House?

Going through divorce means dealing with hundreds of details, some more important than others. One detail that merits extra contemplation is how to deal with the marital home.Does one spouse want to keep it because the children still live there? You don't want to disrupt their lives any more than is already happening. What if the children are grown? Do you still need that much of a house?Here are the three most common means of dealing with the house in divorce:Selling the house and dividing the…See More
Apr 24, 2019




© 2020   Created by Cynthia Tiano, Esq..   Powered by

Badges  |  Report an Issue  |  Terms of Service