If you will be finalizing your divorce or legal separation this year, you need to know how changing your marital status will affect your taxes. We can’t give legal advice or cover every topic in a blog post, but a few of the major issues include how alimony and child support are treated, contributions to individual retirement accounts, and name changes.
Child support is not considered taxable income and cannot be deducted by the paying party. However, if you have children, you should know that you may be able to claim them as dependents. Generally, the custodial parent gets to claim the children as dependents. The custodial parent is defined, for IRS purposes, as the parent with whom the child lived for the greater part of the year.
However, you may negotiate different arrangements for claiming dependents as part of your divorce or separation agreement. If the parent who will be claiming the dependents is not the custodial parent, the custodial parent must sign Form 8332 (or a similar statement) and the claiming parent must attach it to his or her return.
Alimony, meaning spousal support or maintenance, is different. According to the IRS, alimony is considered taxable income to the recipient and can be deducted by the payer. There are a couple of important things to keep in mind. First, payers can deduct alimony whether or not they itemize their deductions. Second, alimony is not subject to tax withholding, so recipients may end up with a surprise bill at tax time. To avoid that, you can make estimated tax payments ahead of time, or you can increase how much in taxes is being withheld from your paychecks.
Contributions to IRAs are also affected by divorce and separation. If your divorce decree or separate maintenance agreement is finalized by the end of the tax year, you will only be able to deduct contributions made to your own traditional IRA. In past years you may have deducted contributions made to your former spouse’s IRA, as well, so note the change.
Name changes are common after divorce and separation. If you decide to make such a change, the IRS says to notify the Social Security Administration. The name on your tax return must match your Social Security record, and a mismatch could cause processing problems and delay your refund.
Whatever your situation, your divorce attorney can provide specific answers to your questions or refer you to an appropriate expert.