Taxes and Divorce

Is your relationship coming to a close? If so, you are likely feeling a lot of sadness, confusion, dissatisfaction and unhappiness. In addition to all the emotions that arise in the face of separation and divorce, you’re also expected to think about the way your tax filing status will change.

But what happens when the IRS views you as a couple until you obtain the final decree of divorce or separation? How do you handle your taxes as a couple navigating separation and divorce? We’re going to explore the answers to these questions below.

Advice from the IRS

The IRS recommends that you update your tax withholding information. Start by filing a new W-4 form. Known as the Employee’s Withholding Certificate, this document can be obtained through your employer. Make use of the IRS Tax Withholding Estimator on the IRS’s website to ensure that you report the correct amount of tax to withhold on the new form.

Think about whether you anticipate receiving alimony or some other form of payment. If you do receive alimony, it is required that you make estimated tax payments, so keep that in mind.

Also, pay attention to the money you pay to your spouse, whether you are still legally together or have officially divorced. The government regards certain alimony and maintenance payments as deductible on the part of the spouse who pays said payments. However, the recipient of these payments must report the payments as income.

Last but not least, make sure you claim your children on your tax return if you have custody of them. Now, if you have arranged a custody agreement where each parent has equal custody of the children, have a conversation with your former partner and decide which one of you will claim them on a tax return.

Details to keep in mind

If you and your former partner cannot agree on certain matters, you can refer to tiebreaker rules, which can be found in Publication 504, Divorced or Separated Individuals. Don’t forget that child support payments are not deductible by the payer, but at the same time, they are not taxable for the payee.

Also, not all payments under a divorce or separation instrument — e.g., a divorce decree, a separate maintenance decree, a written separation agreement — are regarded as alimony or separate maintenance.

Keep in mind that the following situations are not included:

• Child support.
• Noncash property settlements.
• Your spouse’s community property income payments.
• Payments for the sake of keeping up the payer’s property.
• Use of the payer’s property.
• Voluntary payments.

Now, if a divorce or separation instrument requires alimony and child support, child support comes first. This means the payments are recognized as child support first, and if any money remains after child support duties are fulfilled, then that money is regarded as alimony.

If you have property transfers to deal with, know that the IRS does not recognize any gains or losses as part of those transfers. That said, you might have to report the transaction as part of a gift tax return if applicable.

Generally speaking, a payment is considered alimony or separate maintenance if you and your former spouse do not file a joint return.

The same is true under the following circumstances:

• If the payment is in cash.
• If the payment is made via check or money order.
• If you and your spouse are not members of the same household.
• If you are legally separated and the payment is not treated as child support or a property settlement.

Whatever you do, make sure you deduct all alimony or separate maintenance payments on your tax return. Use Form 1040, which is a document known as the U.S. Individual Income Tax Return. If you received taxable alimony or separate maintenance, you need to make sure you report the amount as part of your income.