How will divorce affect your income taxes? That is a question many recently divorced or soon-to-be divorced couples have on their minds with the approach of Tax Day! A knowledgeable New Jersey divorce lawyer who works with tax specialists can help you understand how recent tax laws will impact your particular situation. Call the New Jersey divorce attorneys at Aretsky Law Group, P. C., to better understand how your new status will impact your tax obligations.
The following questions are similar to those often posed by our clients.
Divorce and Income Tax: Frequently Asked Questions
Question #1: I filed for divorce in 2016, but our divorce was not final until early 2017. Should I file as married or single?
Answer: Your marital status on December 31 of the tax year determines your filing status for the entire year. You have a choice of filing a joint return or a separate one; however, in either case, your status would be “married.”
Question #2: My ex and I both want to file as head of household. Can we both claim this status? What are the requirements?
Answer: Only one of you can file as head of household. In order to file as head of household you must meet these two requirements:
- You were responsible for more than half of the upkeep on your home for the year in question.
- You had a qualified child or other dependent living with you for more than six months of that calendar year.
Question #3: What are the benefits of filing as head of household?
Answer: The head of household is entitled to a larger standard deduction and, therefore, possibly a lower tax rate and/or a better chance of getting a refund.
Question #4: My ex-spouse and I have joint custody of our child. Who can declare him as a dependent? Can we split the exemption?
Answer: According to IRS law, the custodial parent gets to declare the child as a dependent. If you share custody, then the parent with whom the child spent the most nights is entitled to the exemption. Only one parent can claim the exemption in any given year. The exemption may not be split.
Question #5: My ex-spouse and I agreed to alternate taking the dependency exemption when we file our income tax return. Will the IRS accept this?
Answer: Even if your property settlement agreement or divorce judgment calls for this or any other arrangement, the IRS may not allow it unless the custodial parent fills out Form 8332 and attaches it to his or her income tax return. This form is a “Release of Claim to Exemption for Child of Divorced or Separated Parents.”
Question #6: I receive child support from my ex. Is this taxable income?
Answer: No, money received as child support is not taxable income, and child support payments are not tax deductible.
Question #7: Are my alimony payments tax deductible?
Answer: Yes, spousal support, or alimony, payments are tax deductible, but it is necessary to have the amount clearly stated in your divorce agreement.
Question #8: Do I have to pay taxes on money received as alimony?
Answer: Yes, money received as alimony is considered taxable income. Your ex must provide your social security number with his or her income tax return.
Question #9: Do I have to pay income tax on the assets I receive from equitable distribution of our marital property?
Answer: No, these are not considered new assets. However, if you later sell one of those assets, such as a stock portfolio, a piece of real estate, or a home, there may be tax consequences at that time. A qualified New Jersey divorce attorney can help you understand what is best for you at the time of your negotiation.
Question #10: I may have to cash out my 401(k) in order to pay my ex-spouse what was decided in our equitable distribution agreement. Will I have to pay a tax on this money?
Answer: The answer is yes, but…. You can avoid paying this tax if you transfer the money to your ex under a QDRO, or Qualified Domestic Relations Order, which gives your ex-spouse the right to the funds.
Question #11: As part of our equitable distribution agreement, I must transfer some funds from my IRA to my ex. Do I need a QDRO?
Answer: No, a QDRO is not necessary with an IRA; however, be sure that your agreement specifies the reason for this transfer.
Question #12: May I deduct payments made to my divorce lawyer on my tax return?
Answer: You may not deduct legal fees. On the other hand, you may deduct payments made to your attorney for tax advice pertaining to your divorce or for help getting or collecting alimony.
Preparing and filing your income tax return and dealing with divorce are both difficult. Taken together, the result can be overwhelming. Consulting a knowledgeable divorce attorney who works with financial experts can go a long way towards alleviating the stress.
This article is not meant to provide legal or financial advice.
Contact the experienced New Jersey divorce and equitable distribution attorneys at Aretsky Law Group, P.C. They can answer your questions about divorce and taxes, equitable distribution of marital property, and other important issues.