Tax considerations relating to divorce
By Hirsch Serman, MBA, CPA, CDFA
Divorcing and divorced families can add a layer of complexity when filing their tax returns. Below outlines some of the major items to consider and/or are often overlooked when working with someone going through a divorce or after the divorce is finalized.
Picking the right filing status
- If you are still married, you may have three options of filing status – Married Filing joint (MFJ), Married Filing Separate (MFS), Head of Household (HOH). You will need to see the requirements, reasons, and benefits relating to each to choose the most appropriate filing status.
- If you are divorced, you may have two filing status’ available – Single, HOH.
Maintenance (aka Alimony, Marital Support, Spousal Support)
- It is essential you confirm the year the divorce is finalized (and/or whether the divorce decree was modified).
- If the divorce was finalized prior to 1/1/2019, then the maintenance is deductible to the payor and included in income for the recipient.
- If the divorce was finalized after 12/31/2018, then the maintenance is neither deductible to the payor nor is it included in the recipient’s income.
Child Support Payments
- These are different from maintenance and are not deductible by the payor nor included in income of the recipient.
- If the taxpayer receives maintenance and it is taxable, confirm that there is no child support in the number they give you.
Claiming the children
- The first step here is to verify the children are eligible to be claimed.
- Generally, the custodial parent is treated as the parent who provided more than half of the support. The non-custodial parent may claim the child if the custodial parent completes and signs Form 8332.
- Often the divorce decree will spell out who will claim which children and in what tax years. Just because a child is on the PY return does not automatically mean the child can be claimed this tax year again.
- Even if the divorce decree states the non-custodial parent can claim the child, the non-custodial parent may still require Form 8332. This will depend on when the divorce was finalized (post 2008 divorces require a Form 8332). In addition, you will need a Form 8332 for the current year, even if the Form 8332 is attached to the PY return.
- If there it is not spelled out in the divorce decree or the parents are deviating from the divorce decree, then Form 8332 should be attached to the tax return.
Transferring Property in a Divorce
- There is no gain or loss when transferring property in a divorce (this does not apply if the spouse/former spouse of the individual making the transfer is a non-resident).
- The recipient of the asset effectively “steps into the shoes” of the spouse regarding ownership and basis. This may be helpful to remember when determining the cost basis of an asset.
- After passing TCJA of 2017, taxpayers generally may not deduct the cost of their divorce lawyer or cost of advice from actuaries, accountants, or appraisers.
Please reach out if you would like to clarify your situation relating to the tax topics above or any other questions you may have.
Hirsch Serman, MBA, CPA, CDFA is the founder of Lifecycle Financial LLC, a company that helps those going through Divorce and other life cycle changes to navigate the financial pitfalls of a new life dynamic. The company was founded through personal experiences in divorce and watching the changes in an aging parent. He has worked in finance for over 20 years (including financial planning and tax) and has taught on the university level as well as conducted seminars for high school youth on personal finances. Hirsch is a member of the American Institute of CPAs, The Institute of Divorce Financial Analysts, The Amicable Divorce Network, The National Association of Divorce Professionals, and the American Association of Daily Money Managers (AADMM).
Get to know Hirsch through his radio show The Financial Wellness Hour or reading his blogs and articles.
INC., US News & World, The Memphis Business Journal, Medium, Authority Magazine, DivorceMoms.com, and many other media outlets have all covered his work in Divorce and Hirsch was selected to be a New Orleans Entrepreneur Week Fellow. Hirsch has a passion to serve others and has worked with numerous non-profit boards including the United Way and is a trustee of Texas College. Please reach out with any comments to firstname.lastname@example.org.
Hirsch A. Serman, MBA, CPA, CDFA®
Financial Coach & Tax Professional
Lifecycle Financial, LLC
Office (312) 985-6648
Cell (440) 666-4524