Once your divorce is final, among the various other adjustments you will need to make as you adjust to your new life, you will need to submit your federal tax returns as a single filer. There are some unique considerations to keep in mind the first time you file your taxes after your divorce (and potentially in subsequent years as well), and certain decisions that you make during the divorce process could impact your filing obligations and income tax liability.
As you prepare for your divorce, here are some of the tax-related considerations to keep in mind, whether you’re in Carmel or elsewhere in Indiana:
For tax purposes, you are considered unmarried for the entire year in which you get divorced. IRS Publication 504 states, “You are unmarried for the whole year if . . . [y]ou have obtained a final decree of divorce or separate maintenance by the last day of your tax year. You must follow your state law to determine if you are divorced or legally separated.” On the other hand, you must still file as a married couple if, at the end of the year:
There is only one exception to this rule, and it only applies in circumstances where spouses divorce, “for the sole purpose of filing tax returns as unmarried individuals,” and with the intent to remarry in the following year.
Some (but not all) of the expenses you incur during your divorce will be deductible on your first post-divorce return. As with all tax-related matters, you should consult with your accountant before making any decisions about what to exclude on your federal return. Divorce-related expenses that newly-single filers may deduct include:
Legal fees for other aspects of your divorce cannot be deducted. Court costs are another non-deductible expense. In order to deduct eligible divorce-related expenses, you must itemize your deductions using Schedule A and the standard Form 1040 (not Form 1040A or Form 1040EZ).
As a general rule, alimony payments are deductible by the payor and reportable income for the recipient. However, for tax planning purposes, divorcing spouses have the option to designate certain payments as “not alimony,” and other voluntary payments not qualifying as alimony may receive different tax treatment. For the payor, itemization is not necessary in order to claim alimony deductions (unlike deducting the divorce-related expenses discussed above); however, use of the standard Form 1040 is still required.
If you have children from your marriage, you can generally expect that either you or your spouse will have an obligation to pay child support. The federal income tax rules for child support differ substantially from those for alimony. As stated by the IRS:
“Child support is never deductible and isn't considered income. Additionally, if a divorce or separation instrument provides for alimony and child support, and the payer spouse pays less than the total required, the payments apply to child support first.”
Importantly, for tax purposes, a payment from one former spouse to another can be considered child support for tax purposes even if it is not specifically designated as child support and is paid in addition to the support required under the parties’ divorce decree. The IRS’s income tax rules also state that if a former spouse underpays the total amount owed for alimony and child support under a final divorce decree, for tax purposes, any payments that have been made must be, “appl[ied] first to child support and then to alimony.”
If you filed joint tax returns during your marriage, you are “jointly and severally” liable for any underreported tax obligations, even if your spouse was the one who did the underreporting. However, if you are facing liability for back taxes incurred during your marriage and you were unaware that your spouse was underreporting, you may be eligible for Innocent Spouse Relief. There are three types of Innocent Spouse Relief, each of which is available under different circumstances:
If you live in the Carmel area and are considering a divorce, we encourage you to contact us for a complimentary initial consultation. Divorce lawyer Joshua R. Hains has over a decade of experience representing spouses in high-net-worth divorces and other complex family law matters. To speak with Mr. Hains in confidence, please call (317) 688-1305 or request an appointment online today.