How Will My Taxes Change If I Get a Divorce?

When going through a divorce, annulment, or legal separation, it’s important to recognize that your taxes can become complicated. On top of the emotions and overwhelm tax season can bring a new layer of questions and concern. 

The following blog will explore how your taxes may change during or after a divorce and relay critical aspects of taxes to consider when separating or divorcing. 

How are taxes addressed after a divorce?

One common question couples and individuals have what filing status to use after finalizing a divorce. According to the IRS, the simple answer is that if your divorce was formally finalized before the end of the calendar year, you cannot file a joint return for that year, and you must consider the tax impacts of your divorce. However, it’s sometimes best to automatically file as a single person. One major exception is if you qualify as head of household because you’re providing a home for a child, which can lower your tax liability. 

Another way divorce can impact your taxes is regarding health insurance payments. Suppose you and your ex-spouse bought health insurance through a state or federal marketplace and received an advance of the premium tax credit. In that case, changes in your family structure, such as divorce, marriage, adoption, or job changes, can impact your monthly payment. Therefore, informing the marketplace of changes is essential to avoid unexpected financial consequences.

Taxes and divorce can get complicated very quickly, especially if a couple is going through a high-asset divorce, is dealing with a complex property division, or has shared business ventures. It is essential to formally meet with an attorney informed on the logistics of divorce for an initial consultation.

Is alimony taxed?

Alimony payments made under agreements executed after December 31, 2018, are not deductible by the payer or taxable to the recipient. However, for agreements executed before January 1, 2019, alimony payments are deductible by the specified payer and may be considered taxable income for the recipient. 

The divorce agreement should clearly define alimony payments to understand their tax impacts. When attempting to qualify as alimony for tax purposes, the payment must be in cash, not explicitly stated as non-alimony, and not part of a joint return filed by the spouses. Additionally, the spouses cannot be members of the same household when the payments are made, except for a one-month buffer period.

Are child and spousal support taxed?

Child support payments are treated differently for tax purposes than alimony payments. However, both can be included in divorce or separation instruments; child support payments are not tax deductible by the payer and are not taxable to the recipient. The IRS suggests that when individuals calculate their gross income during tax season to inquire about their tax return, they do not include child support payments received.

Do you have questions about divorce and taxes? Contact us today.

Divorce can be a major life upheaval, often filled with emotions and disagreements. To ensure your rights are protected throughout the process, having an experienced attorney dedicated to representing you is essential. 

Robbins & Licavoli, PLLC specializes in Michigan family law, and our attorneys provide compassionate representation no matter what stage of the divorce you’re in. Please get in contact with us today and schedule a consultation.