The general rules outlined in the next few paragraphs are intended to alert you to issues and provide some general information. Before you sign any tax return or take any action with respect to your federal or state income tax returns, please review your situation with your tax advisor; that is not me.
Subject to many qualifications, alimony in futuro and other alimony subject to a condition is deductible to the party paying it and taxable to the party receiving it. Child support is not deductible to the party paying it or taxable to the party receiving it.
If you receive alimony you may need to make estimated quarterly tax payments. If you are employed you need to tell your employer about the divorce so they can change your tax filing status which will increase your withholding.
Unless specifically addressed in your Decree, generally the custodial parent will be entitled to claim the dependency exemption on his or her income tax return. The custodial parent may execute IRS Form 8332, releasing the dependency exemption to the noncustodial parent. This may be done as an annual election.
Generally, there is no tax gain or loss recognized as a result of the division of property between spouses upon divorce. Thus, there may be no tax incurred by dividing the property.
It is important to know the basis of the property that you receive in the division of your assets. The basis is generally the cost of acquiring, and in some cases developing, a capital asset. If the asset has appreciated, the person who receives that asset will be responsible for tax on the appreciation when the asset is sold. Depreciation is deducting a portion of the basis of an asset. If an asset has been depreciated to a low basis, the sale of that asset can have very adverse tax consequences. This commonly occurs with rental property and business equipment.
If your Decree provides that you and your former spouse will sell your jointly owned residence, you will each be responsible for reporting your portion of any capital gain. Capital gain is the profit resulting from the sale of capital investments, such as the marital real estate. There is a Five Hundred Thousand ($500,000.00) Dollar exemption for capital gains for the sale of a home by a couple or Two Hundred Fifty Thousand ($250,000.00) Dollars exemption for any single person.
Beware of signing joint tax returns with your ex-spouse-to-be. Although your agreement may provide for your ex-spouse-to-be to be responsible for any tax liability, the IRS can turn to you. By the time the IRS completes the audit, your ex-spouse may be bankrupt or dead and you may be the only one left to pay the taxes.
If you have moved you need to file Form 8822 to notify the IRS that you moved. Without that, the IRS can send notices to your old address and you may not receive the notices, but the IRS can hold you responsible for any missed deadlines.
The impact of taxes can make a great difference in divorce. I am not a tax lawyer. While I know some things about taxes and divorce, I am not a tax expert by any means. If you need tax advice, we must associate a tax lawyer or a certified public accountant in your case