Death (of a marriage) and Taxes | Divorce and Taxes

I was not prepared for the consequences of divorce and taxes, and learned some important lessons about the vital role my accountant could have played in my divorce negotiations.  We split the kids as dependents and my ex-spouse wanted the younger child so he could benefit financially for a few years more.  It didn’t seem worth fighting for.  Fast forward 12 years, I am paying for my younger child’s college while dad gets the benefit of the college credit.  Please learn from my mistakes.

An often overlooked expense during divorce is the additional cost of changing your tax filing status from married to single or head of household.  You may want to speak to your HR department about changing your W4 to ensure accurate withholdings. As April 15th (or 17th) approaches, make sure to consult with your accountant to minimize unexpected expenses. 

Another area to discuss with your attorney and accountant is how you will divide your children as ‘dependents’ for tax purposes. These tax decisions carry significant financial implications over the course of your child’s life through college graduation.  On top of the credits you’ll receive for dependents, there is a significant annual tax credit for your college-age child. Who gets the younger children and has the tax break for longer?  Who takes the child who is more likely to attend an expensive college and receives that college tax credit for four years? 

College Credit

You can claim up to $2,500 per eligible student, per year. The credit covers 100% of the first $2,000 of qualified tuition, required fees, and qualified expenses, plus 25% of the next $2,000. 40% of the credit is refundable, so you may receive $1,000 per eligible student as a tax refund even if you owe no tax.

Change in Tax Law for 2019

Spousal support is another area that is changing and has serious tax implications. The federal government recently passed legislation that will notably impact those paying and receiving alimony.  Anyone whose divorce is granted after December 31, 2018, will be facing a very different tax scenario. Currently, an ex-spouse may deduct the amount paid in spousal support while the recipient pays taxes on it.  After January 1, 2019, the paying spouse will lose his/her deduction and the receiving spouse will no longer be taxed on it.

This change has far-reaching ramifications and increases stress and complications for all parties. The law in effect removes the incentive for higher tax bracket spouses to agree to a more generous support agreement and necessitates a new approach for judges who make alimony awards, and lawyers who negotiate divorce and separation settlements.

Get educated on divorce and taxes so that you receive the tax relief you desire.  Expert advice is available at your fingertips 24/7 in our Divorce Support Community.  Get your free trial month at www.jbddivorcecommunity.com and benefit from the legal and financial advice shared by our divorce professionals.