Separation and divorce are never easy for the couples involved. In addition to all the personal issues at play, separation and divorce can impact the former couple’s tax situation as well.
Am I married for tax purposes?
The IRS considers a couple married for tax filing purposes until they get a final decree of divorce or separate maintenance.
Update tax withholding
When a person divorces or separates, they usually need to update their tax withholding by filing a new Form W-4, Employee’s Withholding Certificate, with their employer. If they receive alimony, they may have to make estimated tax payments.
Tax treatment of alimony and separate maintenance
- Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree or a written separation agreement may be alimony or separate maintenance for federal tax purposes.
- Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income.
Rules related to dependent children and support
Generally, the parent with custody of a child can claim that child on their tax return. If parents split custody fifty-fifty and aren’t filing a joint return, they’ll have to decide which parent claims the child. If the parents can’t agree, the IRS provides tie-breaker rules that can be used to resolve the dispute. Child support payments aren’t deductible by the payer and aren’t taxable to the payee.
Not all payments under a divorce or separation instrument—including a divorce decree, a separate maintenance decree or a written separation agreement—are alimony or separate maintenance. Alimony and separate maintenance does not include:
- Child support
- Noncash property settlements, whether in a lump-sum or installments
- Payments that are your spouse’s part of community property income
- Payments to keep up the payer’s property
- Use of the payer’s property
- Voluntary payments
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. Only the remaining amount is considered alimony.
Report property transfers, if needed
Usually, if a taxpayer transfers property to their spouse or former spouse because of a divorce, there’s no recognized gain or loss on the transfer. People may have to report the transaction on a gift tax return.