Divorce and Uncle Sam: Top 10 Things to Know When Filing Your Taxes

1. What is my marital status for declaration purposes? (Married, single, head of household)

Your marital status at the end of the year determines your marital status for the entire year. If you have a separate divorce or support decree signed by a judge, you must file as single. Regardless of whether you have a signed decree, you may be able to file a declaration as the head of the family. Filing as head of household may reduce your income tax liability, but the following conditions must be met to qualify:

o You paid more than half the cost of maintaining your home during the tax year,

o Your home was your child’s main home for more than half the year, and

o Your spouse has not been a household member for 6 months.

If you cannot file as single or head of household, you must file as married filing jointly or married filing separately.

6. Should my spouse and I file as married, file separately, or married, file jointly?

Filing jointly can provide some tax benefits over filing separately. However, by filing a separate return, the IRS cannot hold you liable for unpaid taxes caused by your spouse’s actions or omissions. The “innocent spouse” rule provides relief from this liability in some cases.

2. Is alimony taxable?

In general, alimony is taxable for the recipient (line 11 of the 2004 Form 1040) and deductible for the payer (line 34a of the 2004 Form 1040). However, some couples stipulate in their separation agreement that alimony will not be deductible for the payer or taxable for the recipient.

3. Is child support taxable?

No. Child support is not taxable for the beneficiary nor is it deductible for the payer.

If the payer owes both alimony and alimony, but pays less than the total amount owed, the payments are applied first to alimony and then to alimony. If the separation agreement does not outline separate payments for alimony and child support, the general “family support” payments are treated as child support for tax purposes, unless the alimony requirements are met.

4. Who can claim the dependency exemption for children?

In general, as long as the parents together contribute at least half of the child support, the custodial parent gets the dependency exemption for the child. If custody is divided or indeterminable, the parent who had physical custody for most of the year gets the dependency exemption. Custodial parents can waive their right to the dependency exemption by filing Form 8332.

5. Who can claim the child tax credit and the home and dependent care credit.

Only the parent who claims the exemption for the child can claim the child tax credit for that child. Unlike the exemption, it cannot be negotiated. If you are the custodial parent, you can claim the household and dependent care credit for the child, even if you cannot claim the child’s exemption. If you are the non-custodial parent, you cannot claim the household and dependent care credit for the child, even if you can claim the child’s exemption.

7. Are the costs of my divorce deductible?

In general, legal fees are considered personal expenses, so they are not deductible.

However, legal fees paid to obtain alimony and legal fees related to the tax effects of the divorce are deductible. The attorney must allocate the fees paid for deductible and non-deductible services, otherwise the deduction may be denied. The allowable deduction is a miscellaneous itemized deduction that is deductible only to the extent that, collectively, the miscellaneous deductions exceed 2% of the taxpayer’s adjusted gross income.

8. My spouse and I use the married filing status separately. Can I use the standard deduction if my spouse itemizes?

No. If the spouses are using the marital status for the purposes of the separate declaration of marriage and one of the spouses itemizes their deductions, the other spouse must also itemize.

9. Who receives the mortgage interest deduction and other itemized deductions?

If the marital home is owned by only one spouse, only that spouse can claim a mortgage interest deduction. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the paying spouse. In general, deductible expenses paid with joint funds are divided 50/50 between the spouses, including mortgage interest. The mortgage interest on the fully titled property can be claimed by the spouse who actually paid the expense.

10. Where can I get more information about divorces and taxes?

http://www.rosendivorce.com/taxes

Jessie Danninger is a financial analyst at Rosen Divorce. She assists clients in all financial matters related to divorce, including property distribution, child custody, alimony, and tax related matters. She is a certified divorce financial analyst and public accountant.

With offices in Raleigh and Charlotte, Rosen Divorce is the largest divorce firm in North Carolina. Founded in 1990, the firm is dedicated to providing individual growth and support to couples seeking divorce by helping them move on with their lives. Our staff of specially trained divorce attorneys, accountants, and counselors expertly tackle the complex issues of ending a marriage. Our innovative approach recognizes that divorce is much more than a legal matter. Specialties include child custody, alimony, property distribution, separation agreements, and domestic violence relief.

For more information on Rosen’s divorce or for an interview, contact:

Alison Kramer, Director of Public Relations, Office: 919-256-1542, Cell: 919-523-7104 [email protected]

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