Common tax pitfalls in a divorce
Common tax issues in a divorce
As a Mississippi divorce lawyer, I've seen my share of tax issues arise during a divorce. Three common tax issues are: whether alimony payments are taxable, whether child support payments are taxable, and which spouse gets to takes the tax exemption for the children.
With regard to alimony, the Internal Revenue Service states that alimony "is a payment to or for a spouse or former spouse under a divorce or separation instrument." To be alimony, certain requirements must be met and the rules are different for documents executed after 1984 and those executed before. However, generally alimony payments are deductible from your gross income for those making alimony payments and generally are included in the gross income of a person receiving alimony payments. Again, a word of caution. You must determine whether you are paying or receiving alimony as defined by the Internal Revenue Service. Additionally, if you are receiving alimony, you may need to make estimated tax payments as no tax is withheld from alimony payments. Again, a qualified tax professional can answer these questions.
The second issue is child support payments. The Internal Revenue Service is pretty clear on this issue. It states "child support payments are neither deductible by the payer nor taxable to the payee."
The final issue is which parent gets to claim the tax exemption for their dependent children. This is where many newly divorced spouses get themselves in trouble if they do not address the issue in the divorce decree. Usually, the divorce decree will state who is allowed to claim the child as a tax exemption and require the other spouse to execute a waiver, IRS Form 8332. In most cases, the exemption goes to the custodial parent when the child resides with that parent for more than 6 months out of the year unless the spouses have agreed to apportion it differently. Click here for IRS Publication 501 (Exemptions, Standard Deduction, and Filing Information) which discusses the issue more in-depth.
Although I've discussed three common tax issues in a divorce, there are many others tax issues in a divorce. The Internal Revenue Service publishes a great document which discusses these and many other tax issues in a divorce. Click here for Publication 504 (Divorced or Separated Individuals). Also, you should consult a qualified tax professional to answer your specific questions prior to filing your return.
