Equifax

Finance Blog

How Divorce Affects Your Tax Return

Written by Eva Rosenberg on July 13, 2011 in Tax  |   5 comments

How Divorce Affects Your Tax Return Eva Rosenberg, EA In 2010, 6.8 percent of the population got married. And 3.4 percent got divorced. Yikes! That means that half of married couples are apt to face the tax issues of getting divorced. What do you need…

How Divorce Affects Your Tax Return
Eva Rosenberg, EA

In 2010, 6.8 percent of the population got married. And 3.4 percent got divorced. Yikes! That means that half of married couples are apt to face the tax issues of getting divorced.

What do you need to know during the process of divorce?

“Family Support” is a dangerous phrase. Never let this phrase appear in your divorce agreement. It is meaningless for tax purposes. Insist that your divorce agreement replace that phrase with either “alimony” or “child support” or both. Child support is not income to the parent receiving it, nor is it deductible to the person paying it. However, alimony is income to the parent who receives it—and deductible to the parent who pays it.

There is a difference between alimony and splitting the marital estate. Not all payments to your ex are alimony. Alimony means supporting your ex from your current income. Sometimes, when dividing the assets, one spouse may be reluctant to sell or cash out an asset. Instead, he or she opts to make installment payments to the ex. That’s not alimony. You’re just paying your former spouse the share of what he or she already owned. Not understanding the tax rules of alimony can result in losing the deduction and paying recapture taxes.

Claiming your child or children must be done with care. This is generally a very nasty battle because there are so many benefits that arise from claiming a child on your tax return.

  • You get to be head of household, putting you into a lower tax bracket.
  • You get to claim the dependent’s exemption, worth $3,650 per child in 2010.
  • You may get to claim a variety of tax credits, worth many thousands of dollars.
  • You get to claim a variety of deductions for the expenses you spend on that child, including medical, dental, and education.

Problems with this issue are easily avoided at the time of divorce.

1) Have the divorce agreement specify which parent gets to claim which child.

2) When trading off years, have the divorce agreement specify which years each parent gets that child.

a. In this case, have each parent sign a Form 8332, giving up the right to claim that child for the years the other parent gets him or her.

b. In the event of a disagreement, the IRS regards the signed Form 8332 as the deal-breaker. Otherwise, you face the IRS’s complex rules.

3) If one parent must pay child support, spell out that if the child support is not paid on time, and within the tax year, that parent is not entitled to claim that child.

a. Have this page copied and signed separately, with a provision that non-payment child support will override the signed Form 8332.

b. Attach a copy of this to the signed Form 8332 that is retained by the parent receiving the child support.

Things to read

Aside from being nasty, heart-breaking, and expensive, divorces have tax implications that may affect decades of your future. Be sure to include your tax professional in all the decisions—and have him or her review all papers before you sign them. We can catch tax-related oversights that your attorney doesn’t understand.

Read More:

Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com.

5 comments

Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Stay Informed Sign up for our FREE Equifax email Newsletter