Divorce & Taxes: What You Need to Know

Whether you’ve recently been married, legally separated, or divorced, if your marital status has changed in the past year, you’ll need to think about the tax implications. We can provide some general information about how divorce may affect taxes, but keep in mind that tax laws can vary, and it's crucial to consult with a tax professional for advice tailored to your specific situation.

Here are some common ways divorce may impact taxes:

1. Filing Status:

Your filing status changes from "married filing jointly" to "single" or "head of household" after a divorce. This change can affect your tax brackets and standard deduction.

2. Child Support and Alimony:

  • Child support is not considered income for tax purposes, neither deductible by the payer nor taxable for the recipient.
  • Alimony (spousal support) may be deductible for the payer and considered income for the recipient, but this depends on the divorce agreement and when it was finalized. Recent tax law changes (as of 2019) eliminated the deduction for alimony payments for agreements made or modified after December 31, 2018.

3. Dependency Exemptions

The custodial parent generally claims the child as a dependent for tax purposes. This can impact eligibility for certain tax credits, such as the Child Tax Credit and the Earned Income Tax Credit.

4. Asset Division:

Transferring assets between spouses during divorce is usually tax-free. However, if you sell an asset after the divorce, you may incur capital gains tax. It's important to consider the tax implications when dividing property.

5. Retirement Accounts:

Special rules apply to the division of retirement accounts, such as 401(k)s and IRAs. A qualified domestic relations order (QDRO) may be necessary to avoid early withdrawal penalties and taxes.

6. Real Estate:

If real estate is part of the divorce settlement, be aware of potential capital gains tax implications when selling the property.

Legal Fees:

Generally, legal fees related to a divorce are not tax-deductible. However, fees related to tax advice in the divorce process may be deductible.

Remember, tax laws can change, so it's crucial to stay updated and consult with a tax professional to understand the specific implications of your divorce on your taxes.


IRS, Taxes and Divorce: How Will You Be Impacted? (divorcedmoms.com)