Getting a divorce is an already overwhelming process. When you throw taxes into the mix, it can cause everyone to experience a significant amount of uncertainty and stress. This is because many couples going through a divorce are not only struggling to figure out whether they are still supposed to file taxes together after they decide to divorce, but they often have no idea what tax write-offs they are able to pursue when filing these taxes.
That is why in this blog post, we will go over these various issues dealing with taxes and divorce in hopes of clearing up some of the confusion that is often involved with this topic.
The Filing Status After Divorce
Typically, the marital status you indicate on your taxes will be determined at the end of the year. This means that if you are divorced by midnight on December 31 of the tax year, you will need to file separately from your former spouse. What’s more, if you are the custodial parent of your child, you may qualify for the favorable head of household status. However, if you are not, you may have to file as a single taxpayer even if you were married for part of the tax year.
Deductions and Alimony — Is Alimony Still Tax Deductible?
Since 1942, those individuals who paid alimony had been able to deduct alimony payments from their income, resulting in some tax savings. However, today, these laws are long gone. According to recent federal tax changes, alimony payments will no longer be deductible and will not count as income to the spouse that receives the alimony. This new rule applies to anyone that has been divorced beginning on January 1, 2019, or later.
These updated regulations were implemented because lawmakers claimed that alimony deductions allowed divorced couples to get a better tax result than married couples. However, the loss of these tax savings from this deduction will likely end up causing lower alimony awards because there will be less income or money in play.
Child Support Deductions — Is It Possible?
In general, the answer to this question is no. Since married couples cannot deduct the money they spend on their children, divorced couples also cannot deduct the money they spend on child support.
Handling a Sale of the Home
For many couples, divorce means that they will need to separate their home into two households. Consequently, divorcing couples may decide to sell their home to start fresh, or when they cannot agree on who should keep the house.
However, if the ex-spouses sell their home for a profit, it can have significant implications on their taxes, as they now may owe capital gain taxes on their portion of the profit. This can become even more complex when the couple starts to factor in how long they owed the home and how much it was worth when they first bought it. As a result, it is essential to speak with an experienced divorce attorney during this process to ensure that your taxes are prepared correctly, and all the laws are taken into account.
Retirement Account Issues
Another significant issue that arises in divorce settlements is what happens to retirement accounts. For many couples that decide to divorce, they must divide the retirement benefits when their marriage ends. For instance, one spouse may be entitled to a share of the other’s workplace pension. However, since companies do not always pay this pension money immediately, couples may have to wait to get their respective shares.
One way the court solves this problem is by issuing a domestic relations order or a qualified domestic relations order, also known as the QDRO. This order is a written set of instructions that are given to a plan administrator. These instructions refer to the terms and the conditions of how the two parties are dividing the pension benefits. The instructions will also lay out details like how much of the benefits need to be paid to each party, how the benefits will be paid to each party, and when the benefits should be paid.
Legal Fee Deductions
Finally, one of the last deductions most ex-spouses want to know about is whether they can deduct the legal fees they had to pay to end their marriage. Unfortunately, the answer to this question is often no. In most cases, legal fees are not tax-deductible.
In the past, couples may have been able to deduct legal fees they paid for regarding the tax advice they received in connection with getting a divorce or alimony, but the recent tax reform rules have changed things. That is why to verify what deductions you can take, you should speak to a skilled divorce attorney who can help you figure out what you can and cannot deduct.
Filing Taxes After a Divorce? Get the Legal Help You Need
Nothing can stop the confusion and the pain that follows the ending of a marriage. However, when it comes to ensuring that filing taxes after a divorce is as stress-free as possible, then working with an experienced divorce attorney can be the answer you need. Especially since our country’s tax laws are constantly changing, making an already complicated process even that much more difficult. Fortunately, with these attorneys on your side, they can not only provide you the support you require during this challenging time, but they can help you get the tax benefits and advantages you need.
For these reasons, do not wait to seek the legal help you need when going through a divorce. Instead, reach out to the law firm of Stephenson, Chávarri & Dawson, L.L.C. or call our office at 504-523-6496 to speak to one of our experienced divorce attorneys about your case. Our lawyers can go over all the questions you have and ensure you understand not only the specific issues regarding your situation but also how to file your taxes correctly.