Print Posted by National Association of Tax Professionals on 09/24/2014

Divorce - A tax guide on the tax implications of getting a divorce

Divorce - A tax guide on the tax implications of getting a divorce

Determining the tax consequences of a divorce or marital separation can be vital for the financial protection and well being of you and your family. Figuring out whether a payment is alimony or child support can be confusing.

Generally, alimony is the amount paid to a spouse for his or her living expenses, education, health or life insurance, property taxes or mortgage payment. Alimony is not for providing child support. The person receiving alimony must pay taxes on the amount in the year it is received, and the paying spouse may deduct the amount in the year it is paid, provided the alimony meets all of the following conditions:

The payment is made in a cash form, which includes checks, bank deposits, etc. Payments in the form of such things as bonds, stocks, money market shares or actual objects are not considered alimony for tax purposes.

The payment is made as the result of a legal separation agreement or divorce decree.

The spouses do not live in the same household at the time the payment is made and do not file a joint return.

The divorce decree does not designate the payment as nontaxable. 

There can be no liability for payments after the death of the receiving spouse.

Child support, unlike alimony, is not taxable to the spouse who receives the payment, nor is it a tax deduction for the spouse who makes the payment. A divorce decree may specifically call the payment “alimony,” but the payment may have the characteristics of child support. One characteristic of a child support payment might be the designation in the divorce document that the payment be terminated if the child’s situation changes.

Tax challenges during and following a divorce are common, but they can be minimized with some knowledge about tax laws and IRS procedures.

In general, if you want to claim your child as a dependent, you must be the custodial parent (i.e., the parent with whom the child lived for the greater number of nights during the year). If you are the noncustodial parent, the custodial parent must sign a written declaration that he or she will not claim your child as a dependent, and you must attach this written declaration to your tax return.

Make sure you have the proper written declaration, or the IRS will deny your dependency exemption. To release the dependency exemption, the custodial parent may use either Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a similar statement containing the same information as the form.

If you have a divorce decree or separation agreement that went into effect after 1984 and before 2009, you may be able to attach certain pages from the decree or agreement in place of Form 8332. The decree or agreement must state all three of the following:

The noncustodial parent can claim the child without regard to any condition, such as payment of support. 

The custodial parent will not claim the child as a dependent for the year. 

The years for which the noncustodial parent can claim the child as a dependent.

The option to attach pages from the decree or agreement is no longer available to noncustodial parents whose divorce or separation went into effect after 2008. These individuals must attach Form 8332 or a similar statement that was executed for the sole purpose of releasing the dependency exemption.

If you changed your name as a result of a recent divorce, you’ll want to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration (SSA). A discrepancy between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund. 

Informing the SSA of a name change is easy. Obtain Form SS-5, Application for a Social Security Card, at your local SSA office and provide a recently issued document as proof of your legal name change. This document may be your divorce decree. Your new card will have the same social security number as your previous card, but will show your new name.

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