Divorce and Taxes
Filing status: Filing status is based on your status as of December 31. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose Married Filing Jointly as your filing status. If you are still married at the end of the year (your divorce is not yet finalized), then you must file as Married Filing Jointly or Married Filing Separately, or Head of Household, if qualified. You cannot file as Single if you are married.
Joint responsibility: You may be held jointly and in-dividually responsible for any tax, interest, and penal-ties due on a joint return filed before your divorce. This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns.
Name change: If you changed your names because of divorce, be sure to report the change to your local Social Security Administration office before filing your tax re-turn. The name you enter on your tax return must be the same as what is on your Social Security card.
Exemptions: If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse’s exemption. This rule applies even if you provided all of your former spouse’s support.
Dependents: In most cases, a child of divorced or separated parents is the qualifying child of the custodial parent (the parent with whom the child resides for the greater number of nights during the year). If the par-ents divorced or separated during the year and a child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year.
Estimated tax: If you made joint estimated tax payments for the current year and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse’s individual tax as shown on your separate returns for the current year.
Property Settlements and Transfers
If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you will not recognize gain or loss. This is true even if you receive cash, release of marital rights, assumption of liabilities, or other consideration for the home.
Incident to divorce. Transfers are incident to divorce if they are:
- Made within one year after the date the marriage ends, or
- Related to the ending of the marriage—made under an original or modified divorce or separation instrument within six years after the date the marriage ends.
Transfers that do not meet these conditions are presumed not to be related to the ending of the marriage.
Sale of residence. For purposes of the sale of home exclusion of gain, an owner is treated as using property as his or her principal residence during any period that use is granted to a spouse or former spouse under a divorce or separation instrument.
Deducting Costs of Divorce
Generally, attorneys’ fees and other expenses paid in connection with divorce are not deductible. Exceptions:
- Fees paid to determine tax or for tax advice on federal, state, or local taxes of any type are deductible.
- Fees paid to get or collect alimony are deductible.
Fees paid for a spouse or former spouse are not deductible but may qualify as alimony.
Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. It does not in-clude voluntary payments not made under the instru-ment. Alimony is deductible by the payer and must be included in the recipient’s income.
Alimony. Payments are alimony if ALL the following are true:
- Payments are required by a divorce or separation instrument.
- Payer and recipient spouse do not file a joint return.
- Payment is in cash (including checks and money orders).
- Payment is not designated in the instrument as “not alimony.”
- Divorced and legally separated spouses are not members of the same household when payment is made.*
- Payments are not required after the death of the recipient spouse.
- Payment is not treated as child support.
Not Alimony. Payments are not alimony if ANY of the following are true:
- Payments are not required by a divorce or separation instrument.
- Payer and recipient spouse file a joint return.
- Payment is:
– Not in cash.
– A noncash property settlement.
– Spouse’s part of community income.
- To keep up or use the payer’s property.
- Payment is designated in the instrument as “not alimony.”
- Divorced and legally separated spouses are members of the same household when payment is made.*
- Payments are required after death of the recipient spouse. Payment is treated as child support.
* A house formerly shared by the spouses is considered one household.
Spouses are not treated as members of the same household if one spouse is preparing to leave and does in fact leave no later than one month after payment. Until divorce or legal separation is final, spouses can be members of the same household.
Designating payments as “not alimony.” Spouses can agree not to treat otherwise qualifying payments as alimony. A provision clearly instructing that the payment is not to be treated as alimony must be included in a divorce or separation instrument or in a written statement signed by both spouses that refers to a previous written separation agreement. If spouses are subject to temporary support orders, the designation must be in an or-der. A copy of the written instrument must be attached to the recipient’s return.
Payments to third parties. Payments to third parties under a divorce or separation instrument can qualify as alimony. Payments are treated as received by the spouse and then paid to the third party. The recipient can claim deductions for items paid with the alimony.
Home occupied by spouse. If, under the terms of a divorce or separation instrument, one spouse occupies a home that belongs to the other, the owner’s payments for mortgage, real estate tax, insurance, and repairs are not alimony. Payments for utilities may be alimony. Rent-free use of property is not alimony.
Child support is not deductible by the payer or taxable to the recipient. Payments specifically designated as child support in a divorce or separation instrument are not alimony.
Payments not specifically designated “child support” are treated as child support if they are reduced either:
- On the happening of a contingency relating to a child (reaching a specific age or income level, leaving school, marrying, becoming employed, dying, leaving the household, etc.).
- At a time that can be clearly associated with such a contingency.
Underpayment of alimony or child support. If alimony and child support are both required under a divorce or separation instrument, and payments are less than the total required, payments apply first to child support and then to alimony.
This brochure contains general information for taxpayers and should not be relied upon as the only source of authority. Taxpayers should seek professional tax advice for more information.
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