If you're getting a divorce, you can never be too careful about your finances. A large part of a divorce involves financial documents.
And a large part of financials involve tax planning. With the tax season upon us, many people are wondering what issues they need to consider regarding their taxes.
What are some tax issues in divorce you should be aware of? Here are three to keep in mind:
- Your divorce must be final by Dec. 31 of the tax year. If your divorce became final after December 31, 2012, then you're still technically married on your upcoming tax filing. That's the case even if you split up long before December 31, and even if your divorce became final on January 1.
- Alimony can reduce your tax bill. That's alimony paid out, not received. It's an above-the-line deduction if you're the one paying it out. These payments must be pursuant to a written separation agreement in order to be deductible. Also, alimony is different from child support. So it's wise to talk to your divorce lawyer about structuring the financials of the divorce or separation agreement to take into account how the maintenance payments are classified.
- The dependency exemption. Child custody might be an integral part of your divorce. The divorce agreement might state the child custody arrangement and might contain something about the non-custodial parent being entitled to the dependency exemption. The IRS Form 8332 should be signed with the divorce agreement. It releases the custodial parent from claiming the exemption. This will eliminate tax problems in the future and can eliminate a lot of back-and-forth with the IRS if the custodial spouse accidentally (or purposefully) claims the exemption.
These are only a few of the tax issues in a divorce. Take a look at our related resources below for more information on divorce, taxes, and your money.