Tax changes triggered by divorce

The 2016 tax filing deadline is quickly approaching and individuals and couples throughout the U.S. have just 38 days to gather important tax documents and file their tax returns. For individuals who divorced during 2015, it’s important to understand the related tax changes when it comes to filing status and claiming deductions and income.

Married couples are often afforded several tax breaks including being able to file jointly. If an individual is currently going through a divorce or a divorce decree was entered on or after Jan. 1, 2016, he or she still has the option of filing jointly with an ex or soon-to-be ex-spouse. However, if a divorce was finalized at any point during 2015, an individual must file as single.

For newly divorced parents, only the custodial parent is allowed to claim a child as a dependent. In cases where a divorce decree doesn’t explicitly state which parent is the custodial parent, the parent with whom the child lives the majority of the time should claim the exemption. Additionally, the custodial parent can claim $1,000 for each child per the child tax credit.

In divorce cases involving alimony, it’s important that a divorce decree includes language that explicitly states which spouse is responsible for making payments and the amount and duration of such payments. This serves as confirmation to the Internal Revenue Service and allows the paying spouse to deduct alimony amounts. The spouse who receives alimony is also required to claim any and all payments as income, which is then taxable.

While the IRS has specific rules when it comes to alimony, the same isn’t true of child support payments. In fact, the parent who pays child support isn’t allowed to deduct any amount and the parent who receives the payments isn’t required to claim any income.

Individuals who are going through a divorce may be unaware of how decisions or concessions made during the process can affect one’s taxes. A divorce attorney should address these types of concerns and work to negotiate a settlement that won’t result in an individual being overly burdened by new tax obligations.

Source: Kiplinger, “Tax Planning for Getting Divorced,” January, 2015