How Divorce Affects Your Tax Return
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
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.
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.
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.
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.