The tax consequences of divorce are not usually top of mind for individuals as they begin the legal process of ending a marriage. Financial concerns are considered, but more so in terms of the costs of splitting one household into two.
It becomes apparent at some point that the changes that occur in divorce can have significant financial ramifications in terms of taxes paid. It is wise to work with an attorney who understands how the decisions you make will affect your tax returns and help you plan accordingly.
Tips from the IRS
The Internal Revenue Service provides useful tax tips and reminders to individuals who are contemplating divorce or getting divorced:
- Child support — Child support payments are not deductible and if you received child support, it is not taxable.
- Alimony paid – You can deduct alimony paid to or for a spouse or former spouse under a divorce or separation decree, regardless of whether you itemize deductions. Voluntary payments made outside a divorce or separation decree are not deductible. You must enter your spouse’s Social Security Number or Individual Taxpayer Identification Number on your Form 1040 when you file.
- Alimony received – If you receive alimony from your spouse or former spouse, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty.
- Spousal IRA – If you get a final decree of divorce or separate maintenance by the end of your tax year, you cannot deduct contributions you make to your former spouse’s traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.
- Name Changes – The name on your tax return must match SSA records. If you change your name after your divorce, be sure to notify the Social Security Administration. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. A name mismatch can cause problems in the processing of your return and may delay your refund.
- Health care insurance enrollment – If you lose health insurance coverage because of divorce, you are still required to have coverage for every month of the year for yourself and the dependents you claim on your tax return. If you lose coverage due to divorce, you may enroll through the Health Insurance Marketplace during a special enrollment period.
Consult with a knowledgeable attorney
These are just a handful of important tax considerations that must be addressed during divorce. Taxes also affect decisions regarding everything from division of marital assets to custody and developing a parenting plan. Make sure your family law attorney fully understands the tax implications of divorce and addresses these concerns early in the process.