Whether you herald the end of your marriage or dread it like the plague, there is no way for you to avoid the changes and multitude of decisions that you will need to make. You may become so focused on your living situation in Michigan and your kids’ well-being that you fail to consider one major issue that can affect you long after your divorce is finalized: your tax situation.
Certain property and asset division agreements can change your tax situation. Some agreements may be beneficial; others can leave you with a financial obligation to the IRS. To minimize the impact of your divorce on your tax situation, you should take some time to learn about the factors that can affect it.
Your filing status changes
If you separate from your ex-spouse and finalize your divorce before the last day of the previous year, you no longer have to file as married. You can file as single or head of household depending on your child custody situation. If your divorce occurs after the last day of the previous year, the IRS still considers you married, and you must choose to file married jointly or separately. Filing as head of household can help lower your tax obligation to the IRS if you also have custody of your children and are claiming them as dependents. If you do not have custody of your kids, you may have a higher financial obligation to the IRS because you are only eligible to file as single, unless your ex-spouse agrees to let you claim the kids on your taxes. Keep in mind that only one person can claim your children on their taxes.
If you receive alimony or child support
If your former partner pays you alimony, then you must report those payments on your taxes. Alimony is taxable income, and it may result in you having a higher tax bill than usual. To avoid complications with the IRS, you should pay your tax bill in full, set up a payment agreement and increase your tax withholding at work. If your former partner is also sending you child support payments, you do not have to report those because they are not taxable or deductible. Your spouse can deduct the payments he or she sends you for alimony on his or her taxes because they are taxable to you.
As you and your former partner finalize your divorce, do not forget to consider how your tax situation can change. If you are having difficulties splitting your assets and finances in a way that is most beneficial to your post-divorce situation, you should speak to an attorney for guidance.