Divorce and Taxes: Filing Status, Kids, Alimony and Property
Divorce changes your taxes in ways that are easy to overlook while everything else is changing. Decisions made in the settlement can cost or save thousands. Here's what to know, including the rules that are specific to Texas.
By the Enrolled Agents and CPAs at A&W Tax Services · Updated
Filing status
Your marital status on December 31 decides your filing status for the whole year. If your divorce is final by then, you file as single or head of household. If not, you file jointly or married filing separately, or possibly head of household if you lived apart for the last six months of the year and a child lived with you.
In Texas, married couples who file separately generally split community income 50/50 for the part of the year they were married, so the year of the divorce can be complicated. Run the numbers before deciding.
Who claims the children
The custodial parent, the one the child lived with for more nights during the year, generally claims the child. The custodial parent can release the claim for the Child Tax Credit to the other parent with Form 8332, but head of household status, the Earned Income Tax Credit and the dependent care credit stay with the custodial parent. Put the agreement in writing in the decree.
Alimony and child support
For divorces finalized after 2018, alimony (spousal maintenance) isn't deductible by the payer or taxable to the recipient. Older agreements follow the old rules unless they're modified to adopt the new ones. Child support is never deductible or taxable.
Dividing property
- Transfers of property between spouses as part of a divorce are generally tax-free
- The receiving spouse takes over the original tax basis, so an asset with a large built-in gain is worth less after tax than cash of the same value
- Dividing a 401(k) or pension with a qualified domestic relations order (QDRO) avoids the 10% early withdrawal penalty on the transfer
- IRAs are split by a transfer incident to divorce, not by withdrawing the money
- If one spouse keeps the home, the $250,000 home sale exclusion may still be available later
Joint tax debts
Both spouses stay liable for tax on joint returns filed during the marriage, whatever the decree says. If the IRS comes after you for tax your ex caused, you may qualify for innocent spouse relief.