When the Change Take Effect
As far as the Internal Revenue Service is concerned, you are still married until the court finalizes your divorce. Even if you filed for divorce three years ago, you are still married. You could file married jointly or married separately. However, keep in mind that if you file jointly, you will be responsible for any money or mistakes that your spouse makes. If the court finalizes your divorce in the current tax year, the IRS considers you single for the entire year, even if the court finalizes your divorce on December 31 of that year.
Children, Divorce, and Taxes
Once the divorce is final, the IRS will allow only one of you to claim the children. Generally, the parent who has the children at least 51 percent of the year is the parent who claims the children. If both parents have equal time, the parent who has the highest adjusted gross income has the right to claim the children on his or her tax returns.
However, if you have two children, one parent may claim one child and the other parent can claim the other child. If you have an odd number of children, for example, three children, one parent can claim two and the other parent can claim one. Both parents cannot claim any one child.
Alimony and Child Support
Child support was never tax-deductible. However, alimony was. If you paid alimony, you could deduct the alimony from your income. Your spouse had to claim it. If your divorce decree is dated after Dec. 31, 2018, you can no longer claim alimony as a tax deduction, and your spouse no longer has to pay taxes on it. However, those currently paying alimony ordered in a divorce decree dated prior to Dec. 31, 2018, may still claim alimony they pay. Their spouses must pay taxes on the alimony.
Claiming Head of Household
If you stopped living with your spouse before May 31 of the tax year and you paid at least 51 percent of your home expenses for that year, you might be able to claim head of household. You must also have a dependent, whether a child or a parent. If the dependent is a child, the child must have lived with you for more than 50 percent of the year. However, if you do not have the right to claim the child, you cannot file the head of household. Even if your spouse transfers his or her right to claim the child by filing Form 8332, you still cannot claim head of household. Finally, you cannot file a joint tax return and claim the head of the household.
If you have retirement accounts that you need to split, don’t just cash them out and hand the cash to your spouse. The IRS will tax you on that income. Instead, contact France Law about filing a Qualified Domestic Relations Order (QDRO), commonly referred to as a “qua-drow.” The QDRO is forwarded to the entity that manages your 401(k) or other retirement accounts to notify them that upon time for fund disbursement, a third party—your ex-spouse—will be entitled to some payments.
While you don’t pay taxes on asset transfers, the person who gets the asset, such as the house, is now responsible for the taxes on that asset. For example, if you transfer the house to your spouse, and he sells it, he is solely responsible for the taxes gained from selling that asset.
Contact France Law
Make sure you understand all of the tax ramifications of filing for divorce. If you have an estate plan, you should also update the plan. If you are considering filing divorce, contact France Law to set up a consultation.