Understanding Divorce Tax Missteps

Divorce is emotionally challenging and financially complex. One challenging aspect to navigate is the tax implications.

Alimony. For divorces finalized before January 1, 2019, alimony payments are deductible by the payer and taxable to the recipient. For divorces finalized afterward, it's a different story. Alimony recipients aren't taxed on the payments. Nor can the payer deduct them.

Property Division. Even simple property divisions can have tax traps. For instance, consider future tax implications if you're awarded the family home. When you eventually sell it, you could face capital gains taxes on any increase in its value.

Child Support. Child support payments aren't taxable for the recipient nor deductible by the payer. However, who gets to claim the child for tax purposes can be tricky. Usually, the parent with whom the child resides most of the year gets the deduction, but this can be negotiated in your divorce agreement.

Tax Filing Status. If you were still married on December 31 of the tax year, you're probably eligible to file as "married filing jointly," which often results in lower taxes. If your divorce is finalized within the same year, you might need to choose between "single" or "head of household." The latter can offer more favorable tax rates, but you must meet specific requirements. Discussing financial matters openly with your soon-to-be ex can help eliminate confusion. And you'll want to consult with a tax professional to avoid any nasty tax surprises post-divorce.