Avoid tax surprises from the IRS after divorce

A basic understanding of some potential tax obligations can help you avoid surprises from the IRS after your divorce is complete.

Without careful planning, a divorce can result in some unexpected tax consequences. Matters such as the date the divorce is finalized and the details of the property distribution agreement can impact your tax obligations.

Three examples that can directly affect your taxes include:

  • The date the divorce decree is finalized
  • The property division distribution
  • Child support and alimony payments

You can avoid unexpected tax obligations by having a basic understanding of how these examples work.

Why does the date of the divorce matter?

In some instances, even those going through a divorce may choose the "married filing jointly" status for their tax return. This is generally an option if the divorce is not complete prior to the end of the tax year.

Using this status can prove beneficial as it allows for additional exemptions and deductions. However, this filing status also comes with certain risks. For example, with this status each spouse can be held responsible for the other partner's tax liabilities. As such, both the benefits and risks should be carefully reviewed before choosing this filing status.

What about the property distribution portion of the divorce?

There are many different ways the property division determination can impact taxes. Retirement assets, like IRAs are a common example. One issue with this area touches a bit on the above concern regarding the date the divorce is finalized. The date can also result in tax implications that reach IRA contributions. Contributions made to a former spouse's IRA are generally not deductible if the divorce is finalized before the end of the tax year. Any financial planning to take this deduction can be thwarted by the date the divorce is finalized.

What role do taxes play in child support and alimony?

These two areas can cause confusion as one is taxable and the other is not. Child support is generally not taxed. The individual paying child support cannot deduct the payments and the one receiving the payments is not required to claim the support as income. It can help to remember what these payments are intended to accomplish: raising the child. The government is not taxing the money used to raise the child.

Alimony, on the other hand, is taxed. The person making alimony payments may be able to deduct the payments while the one receiving alimony is generally required to make tax payments on any alimony received.

What other issues can arise after the divorce is finalized?

Unfortunately, this list is far from encompassing. Many issues can arise after the divorce is finalized. The risk of these surprises can be reduced by hiring an attorney. Seeking the counsel of an experienced divorce lawyer can help to better ensure your divorce settlement agreement is free from unexpected surprises in the future.