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Does Getting Divorced Affect Your Taxes?

When going through a divorce, you have several things to consider that can affect your life for years to come. Not only are you having to determine things like where your children will spend their time and what types of properties you and your spouse will split, but you also have to deal with the emotional fallout related to divorce and living in a different way than you have previously.

Another major factor of divorce involves the financial implications. In the short term, you may be paying – or receiving – child support or alimony. You may suddenly need to begin working. There may be long-term changes, too. You may be wondering, does getting divorced affect your taxes? At The Cossitt Law Firm, we know all about the tax implications of divorce, and we can help you understand them and work through them. For a meeting with our Colorado divorce lawyers, contact us as soon as possible.

Common Tax Implications of Divorce

Before we begin discussing some of the tax implications of a divorce settlement, we must mention that if you require specific tax advice, you should seek out a tax attorney, CPA, or another tax expert. The Cossitt Law Firm focuses on family law case resolution. We do not advise clients as to issues that require a legal opinion on any tax issue. However, we will provide some general information here that can help you start to understand the tax implications of getting divorced.

Is a Divorce Settlement Taxable?

Whether money paid as spousal support is taxable depends on whether you are receiving or paying the money.

  • Recipient: The spousal support is taxable for the recipient in most cases. The spouse receiving spousal support, also called maintenance or alimony, typically must claim this money as income on the tax statement. 
  • Payer: For the spouse paying the alimony, the amount of the payment is deductible from taxable income in most cases.

According to the Internal Revenue Service, certain circumstances regarding these payments keep them from affecting either spouse’s taxable income, including:

  • Non-cash settlements involving property
  • Payments made to keep up or maintain a home or another piece of property
  • Allowing one spouse to use the other spouse’s property
  • Any payments made voluntarily and not as part of the official divorce settlement.

Tax Implications of a Divorce Settlement on Child Support

If you are making child support payments as part of a divorce settlement, they are not tax deductible. The parent who is receiving the child support payments does not have to record these as income for taxation purposes, either. The tax code considers child support payments as tax neutral. 

Tax Implications of Getting Divorced on Claiming Dependents

Colorado Revised Statutes Section 14-10-115 (12) gives the two parents the ability to claim the children as dependents based on the proportion of each parent’s financial contribution toward raising the children. Should one parent contribute $30,000 toward raising the kids, while the other parent contributes $20,000, the first parent can claim 60% of the benefits of having the children as dependents, while the second parent can receive 40% of the benefits of the dependents.

This is a potentially confusing situation, and we would recommend discussing the situation with a tax professional before completing your taxes.

Additionally, Colorado law requires that if one parent is not current on making court-ordered child support payments at the end of a tax year, the parent who is behind on child support payments is not able to claim any benefit from having the children as dependents. 

To meet with our divorce attorneys, contact us today. At The Cossitt Law Firm, we will put our experience to work for you.

Does Getting Divorced Affect Your Tax Deductions?

Certain tax deductions are available for those going through a divorce. For example, if you seek tax advice regarding your new tax filing status after the divorce, you typically can attempt to deduct any fees you pay. Additionally, fees paid for appraisals, actuaries, and accountants in connection with determining spousal support and alimony in the divorce settlement also potentially can be part of your tax deductions. Of course, you would need to qualify for these deductions through the normal filing of your taxes. If you take the standard deduction, for example, you may not be able to claim these deductions.

Unfortunately, any attorney’s fees you paid to obtain and settle your divorce are not tax deductible.

How Do I Avoid Capital Gains Tax in a Divorce?

If you must cash out part of a 401(k) account or another retirement account to satisfy a division of assets, you usually can do so without early withdrawal tax penalties, as long as the court orders this action. If you try to withdraw retirement account money to satisfy a financial settlement in divorce without a court order, though, the withdrawal may be subject to tax penalties.

Does Getting Divorced Affect Your Taxes Based on the Date of the Divorce?

Because the married filing jointly status tends to provide the biggest income tax benefit for people, you and your spouse may want to continue to file your taxes jointly after the divorce. However, the actual date of the divorce will affect the marital status used when you and your spouse file your taxes. 

  • Divorced before the end of the year: If your divorce becomes final on Dec. 31 or earlier, you and your spouse no longer will be eligible to use the married filing jointly status for that tax year. You will each need to file individually. However, if you remarry in the same calendar year that your divorce became final, you could choose to use the married filing jointly status with your new spouse.
  • Divorced after the end of the year: If your divorce becomes final on Jan. 1 or after, you and your spouse can file for the previous tax year in whichever status you prefer, including married filing jointly or married filing separately. Even though you may actually file your taxes a couple of months after your divorce becomes final, your marriage status on Dec. 31 of the tax year determines the status you can use.

If your divorce became final on Jan. 1 or later, it is important to make sure that you and your spouse are both filing the same way for the previous tax year. If you file married filing separately and your spouse files married filing jointly, this will create a red flag at the IRS offices, calling your tax returns into question.

Even if you have the ability to use the married filing jointly status with your ex-spouse, you may not want to do this. If you have concerns about whether your spouse will be honest about income, you may want to file separately, even though this may cause a higher tax bill than you could have by filing jointly. If you file jointly, you are both liable for any incorrect information on the tax return. 

Learn More About How Getting Divorced Affects Your Taxes at The Cossitt Law Firm

If you want to learn more about divorce and taxes, contact us today and schedule a time to discuss your concerns with one of our Fort Collins divorce attorneys.

Why You Should Choose The Cossitt Law Firm

At The Cossitt Law Firm, our team handles all aspects of divorce, giving us insight into how to handle difficult situations our clients are facing. Tom Cossitt works hard to balance the complexities of divorce with the difficult emotions this process brings to the forefront. Our entire team understands that each family has unique aspects to its divorce proceedings. By focusing on these items, we are able to treat your case with the utmost professionalism and care.

When you want to determine exactly how getting divorced affects your taxes, we are ready to help. Call The Cossitt Law Firm today.

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