Tax Effects of Divorce or Separation

Individuals in the middle of, or just beyond a divorce rarely consider the tax ramifications of the agreements that they make as a party to the divorce proceedings. It’s only later that they become aware of the tax consequences of their divorce, when they get their tax bill and their accountant informs them of the special circumstances which increased it.

Tax Effects of Divorce or SeparationHere are some tax effects to remember if you are involved in a divorce or separation:

  • Alimony or Spousal Maintenance.  If a taxpayer pays alimony to or for a spouse or former spouse under a divorce or separation decree, this amount may be deducted whether or not deductions are itemized. This applies only if the payments qualify as alimony for federal tax purposes. If the decree or agreement does not require the payments, they do not qualify as alimony. Remember that voluntary payment which are not made pursuant to a divorce or separation decree are not deductible. Alimony received from a spouse or former spouse, is taxable in the year that it is received. Since alimony is not subject to tax withholding, it may be wise to make estimated payments or increase the tax witheld from wages during the year to avoid a penalty.
  • Child Support.  While child support payments are not deductible, the receipt of child support is not taxable.
  • Individual Retirement Accounts (IRAs). If a final decree of divorce or separate maintenance is obtained before the end of the tax year, contributions made to a former spouse’s traditional IRA may not be deducted. Contributions by a taxpayer made to a traditional IRA belonging to the taxspayer may be deducted.
  • Name Changes. If a spouse changes her name after a divorce, she must notify the Social Security Administration as a name on a tax return must match Social Security Administration records. Otherwise, if a name is mismatched, the IRS may experience problems processing a return, which will delay the receipt of a refund.
  • Shared Health Care Policy Allocation. If a sposue is divorced or legally separated during the tax year and enrolled in the same qualified health plan as the other spouse, both must allocate policy amounts on their separate tax returns to figure the premium tax credit and reconcile any advance payments made on their behalf.

It is of the utmost importance when facing these tax-related issues and concerns to consider the assistance of an experienced tax attorney. If you live in the New York or the Tri-State area and are facing any of the questions or scenarios presented above, call THE TAX EXPERTS at the Thorgood Law Firm For a FREE consultation, call 212-490-0704.

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