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How will my divorce affect my federal taxes?

On Behalf of | Apr 22, 2024 | Divorce |

A divorce affects a person’s federal income taxes differently depending on their financial situation.

Many times, it makes sense to speak to a tax accountant as well as an attorney if a divorce is on the horizon.

There are some relatively common tax consequences to a divorce about which Texas residents can be aware:

  • Beginning in the tax year a person finalizes their divorce, they must file as single or head of household. This requirement will affect what amounts they can deduct from their taxable income. They should make sure they adjust their withholding and plan accordingly.
  • On the other hand, if a person remains legally married even if they are in the middle of a divorce, they must file as married. They may choose not to make a joint tax filing with their spouse. Even though joint filing often saves on tax liability, sometimes it is best for other reasons not to pursue this option.
  • The IRS has special rules with respect to which spouse gets to claim any dependent children. The default is that the spouse who cares for the children most of the time gets the child tax credits and other exemptions. Spouses can agree to another arrangement, but they must make sure to fill out the proper paperwork.
  • Houston-area residents with retirement plans may need to complete a Qualified Domestic Relations Order, or QDRO, to divide their plan in a divorce without facing withdrawal penalties.
  • Generally, property transfers between divorcing spouses should not trigger income tax requirements. However, there may be consequences when either spouse tries to sell their property later.
  • As a reminder, for the past several years, neither alimony nor child support payments have carried tax consequences.

There may be other tax considerations with respect to divorce

Divorces involving high net worth couples or other complicated situations may also create more complex tax problems for the divorcing couple.

The important thing to remember is that when a person is evaluating their legal options in a divorce, they do need to think about how taxes are going to affect both their bottom line and their future financial situation.