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The Tax Implications of Divorce


The month of April can be one of the most worrisome and taxing times of year—literally. More so, a divorce can be one of the most emotionally painful ordeals a person can go through.

Anyone who has ever gone through a divorce will tell you that the first tax season after filing for a divorce can be a very confusing time.

Questions arise, such as:

  • What is my filing status? — If your divorce hasn’t been finalized by December 31st, then the IRS considers you married for the year.
  • Who gets the tax exemption for the children? — This is something that can be highly contested between two former spouses. As of 2012, one can claim a $3,800 exemption for each qualifying child.
  • Are my alimony payments considered tax deductions? — Yes, but only beginning during the time you and your ex-spouse started living apart.
  • Are my child support payments considered tax deductions? — No, and the person who receives the child support does not need to claim these payments as income on their tax statements.
  • What are the tax implications on transfer of property such as a house, a bank-account, securities and stocks, my pension, or real-estate? — In general, a division of property in connection with a matrimonial action is not a taxable event. However, the basis of the transferred property carries over to the transferee. For example, if you bought a piece of property for $100,000 in 1970 that’s now worth $500,000, whoever receives the property in the divorce settlement will be taxed on the $400,000 of appreciation in value.
  • Who pays the capital gains tax on the sale of the real estate? — That is something you and your ex-spouse will have to work out, hopefully in an amicable manner.

It’s important to work with a mediator or divorce attorney who knows the divorce laws in the state in which you reside. Furthermore, the person you work with needs to be someone who can refer you to a specialized or forensic accountant in the event you require a unique kind of help.

If you have any other questions about the general implications of going through a divorce, contact us.