Divorce is never fun; add that to the mess of taxes and you get one big headache. If you’re trying to navigate the complex tax code and learn how it affects your recent divorce, we can help. You’re under enough stress as it is, so take advantage of these helpful pointers and lighten your load. Figuring out your finances needn’t be impossible; walk through these question and answers designed to give you a better picture on your tax situation.
How do I choose my filing status?
Your marital status at the end of the year determines how you’ll file your return. If your divorce was finalized by midnight on December 31st of the tax year, you can file separately from your former spouse. However, if your divorce was not yet official, you still have the option to file jointly—and should consider doing so. The IRS rewards joint filers with significant tax credits from which you both stand to benefit, and once your decree is finalized this option will be off the table. If you and your ex-spouse are still cordial, a joint return may be a smart move.
What if I’m the custodial parent?
The federal government recognizes the financial burden placed upon custodial parents and in turn offers generous tax breaks. For starters, you may be able to qualify for the favorable Head of Household filing status—which can lead to a lower taxable income and greater potential refund. Also, the custodial parent is usually the one to claim children as exemptions, unless otherwise stated in the divorce decree. If you have joint custody, the exemption goes to the parent who spends more days with the child in a given tax year.
The parent who claims the dependent may also claim additional write-offs, such as the Child Tax Credit or one of the education credits. However, non-custodial parents can still claim deductions for documented medical expenses and childcare costs as long as they continue to care for the child.
Note: If your decree entitles you to claim the tax exemption for children who spend less than six months out of the year in your care, you’ll need your former spouse to sign Form 8332 and include it alongside your tax return.
My spouse lied on our return and I’m paying the consequences. What can I do?
The following information about injured spouse relief is true for both recent divorcees and married couples alike: the IRS considers an “injured spouse” as a taxpayer who filed jointly with their spouse, but whose portion of the return was withheld to cover their spouse’s outstanding debt. For example, he or she may have defaulted on past due student loan obligations, and the government has decided to legally collect on this money in the form of your return. If you’re owed money from your return, but it was applied to your ex-spouse’s debt, you may find innocent spouse relief by submitting Form 8379.
How do I handle a name change?
Contact the Social Security Administration (SSA) as quickly as possible in the event of a name change following divorce or separation. An electronic return must match both the SSA and IRS records, and a mismatch could result in a rejection. You might then have to file by paper, which would delay your potential return, so be sure to clear this up before attempting to submit online.
If we sell our home, do I have to pay taxes?
If you and your ex-spouse decide to sell your joint property before the time of the divorce, you may be impacted by a capital gains tax. Depending on the situation and length of ownership, you and/or your ex may be avoid tax on $250,000 of the gain. Keep in mind that if you decide to transfer the home—or any other asset—the beneficiary will also receive any accompanying property tax.
Divorces are tricky, and taxes only make a complicated situation much worse. Your smartest option is to speak to a professional who can advocate your best interest. Armed with this information, you’ll have a better understanding about the impact of your divorce on taxes and the steps to take when moving forward.