Getting Divorced? How Divorce Affects Your Taxes
Have you come to the conclusion that the love is gone? Maybe you always envisioned yourself meeting a great person, falling in love, getting married, having children, and living happily ever after. However, if your happily ever after is becoming a nightmare, you may be thinking about giving your spouse the boot. If you’re ready to cut your losses and move on to greener relationship pastures, you’ll likely have to deal with some tax consequences. You’ve probably been so busy planning your future that you may have forgotten all about the impact a divorce or separation can have on your taxes. Here are some ways your tax situation could be affected if you divorce or separate.
Your tax situation will be different depending on whether you are the one providing or receiving child support payments. Looking for a tax deduction on child support payments? Sorry, you’re out of luck. Know that child support payments are not tax deductible. At least you can feel good knowing that you’re providing for your child. On the other hand, if you received child support payments, it won’t be taxed.
Rejoice — alimony payments are tax deductible. So while it might be painful to reach into your pockets and send money to your ex, at least you can deduct it from your tax bill. The IRS explains, “You can deduct alimony paid to or for a spouse or former spouse under a divorce or separation decree, regardless of whether you itemize deductions.” However, if you decide to voluntarily provide financial support to your spouse outside of a divorce or separation agreement, these payments are not tax deductible.
If you’re on the receiving end of alimony payments, this money is taxable in the year you receive it. However, alimony is not subject to tax withholding. Consequently, you might have to increase the amount of tax you pay during the year so that you can avoid a penalty for underpayment.
You won’t be able to deduct contributions you make to your former spouse’s traditional IRA if you get a final decree of divorce or separate maintenance by the end of the tax year. However, you might be able to deduct contributions made to your own traditional IRA.
While you may be excited to change your last name (that is, if you took your spouse’s surname after marriage), this could pose some problems when it’s time to file your tax paperwork. You’ll need to make sure that the name on your tax return matches your Social Security records. The IRS says a discrepancy in names could cause problems with processing your return and could possibly delay your tax refund. You can change your name after your divorce by filing Form SS-5 with the Social Security Administration.
Did you lose your health insurance as a result of the divorce? The IRS says you’ll still be required to have health insurance coverage during each month of the year for yourself and your dependents. If you’re looking for insurance, you can enroll through the Health Insurance Marketplace during their special enrollment period.