Federal income taxes seem like the last item on a divorcing spouse's turbulent agenda. New York financial and legal experts share the idea that tax implications of divorce are nothing to ignore.
Spouses are required to know - or pay someone else to know - what tax status, exemption and deduction changes apply after a couple separates or finalizes a divorce. The last day of a tax year plays a central role in filing status.
Whatever marital status was on Dec. 31 of the tax year is the status most spouses will use to file. A couple that divorced in the last days of 2012 was divorced for the entire tax year in the eyes of the Internal Revenue Service. Married and not-yet-divorced couples have status options: married filing jointly or married filing separately.
A couple undergoing a contentious divorce may not want to file jointly. Joint filers share tax refunds but also tax liabilities. Both taxpayers are held responsible in the event of an IRS audit.
Child custody arrangements affect dependency exemptions. Divorce agreements often outline which exemptions are permitted. The children's primary custodian receives exemptions by default when a settlement does not address the tax issue.
Custodial and non-custodial parents may not claim dependency exemptions simultaneously. An adviser can explain rules that allow parents to share exemptions according to divorce agreements, custody time and income.
Payments of child support are not deductible. Separate expenses paid by a non-custodial parent for education, childcare or medical reasons may qualify as deductions. The parent who receives child support does not have to claim payments as income.
The opposite is true for alimony. In many cases, alimony payments are eligible deductions. The spouse whose financial well-being is supplemented by alimony is taxed on the income.
Tax scenarios and options during and after the divorce process can be uncomplicated with the help of financial and legal experts.
Source: huffingtonpost.com, "Divorce Tax Tips: Five Most Common Tax Questions," Joseph E. Cordell, Jan. 29, 2013