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Tax season is upon us! When couples are facing a divorce, dealing with the potential long-term tax consequences is usually not at the top of the list of things to handle. Divorces can be a stressful and emotional process, and individuals usually want to finalize it as soon as possible and move on with their lives. However, difficult and expensive problems can arise without proper tax planning. Planning in these 6 key tax areas can help create a smooth process and avoid costly mistakes. This will allow couples to separate their financial lives in the cleanest way possible.

  1. Determining Tax Filing Status: A couple’s tax filing status is determined on December 31st. If your divorce is not yet finalized by December 31st, you can file a joint return or file separately. If you both choose to file separately, the designation would be “married filing separately” and not “single.” If your divorce is finalized by December 31st, individuals can file as “head of household” if they claim dependents, or you can choose the “single” option, as well. Usually your divorce decree will outline when each parent is claiming the children as their dependents during each tax year. Find out your appropriate filing status here.
  2. Name Change: If you change your name after your divorce decree is finalized, the Social Security Administration will have to be notified and the proper forms filed to obtain a new social security card. Once that is complete, you can use your changed name when filing taxes. Your name on your social security card is the name you must use on tax returns, so it matches the records of the Social Security Administration.
  3. Child Support: Child support payments are not tax-deductible by the parent paying the child support. They are also not included in the income of the parent receiving the child support.
  4. Spousal Maintenance: For all divorce decrees entered after December 31, 2018, spousal maintenance payments are also not tax-deductible for the spouse paying the maintenance. They are also not included in the income of the spouse receiving the maintenance. Read more here.
  5. Property: As a general rule, property acquired during the divorce settlement is non-taxable for federal income and gift taxes.
  6. Retirement Assets: To transfer a portion of a retirement plan, per the divorce settlement, a qualified domestic relations order (QDRO) must be filed and entered with the Court. When properly completed, a QDRO will not cause any tax consequences. Learn more here.

Contact the attorneys at Allison & Mosby-Scott to help you work through your options.