G. Tax Considerations
Your first step in assessing tax liability may be to choose the correct filing status. You may file as single if you are unmarried and have obtained a divorce or legal separation by the end of the tax year (usually December 31st). You generally may file as head of household if you are unmarried at the end of the tax year or are married, have lived apart from your spouse the last six months of the tax year, and have kept up a home for your child(ren) by listing their name(s) on the return as dependents. Couples not divorced by the year end may be able to file a joint return (married filing joint) or separate returns (married filing separate). Obviously, it is best for individuals not yet divorced to figure their tax both ways to determine what method will result in the lowest tax or biggest refund for them.
Bear in mind that if both you and your spouse sign a joint return, each of you can be held responsible for all of the taxes due.
Who gets to claim the children? There are several tests a parent must meet to claim an exemption for a child. Generally, the parent who has provided more than half the child's support qualifies as head of household for income tax purposes and is allowed to claim the dependent's exemption. The parent who has custody of the child for the greater part of the year is routinely treated as the parent who provided more support. If neither a divorce decree or marital settlement agreement clearly establishes custody, then the parent who exercised physical residential custody for the greater part of the year is considered the appropriate party to claim the child's exemption. A custodial parent can also release the exemption to the noncustodial parent by agreement and the execution of a written declaration, IRS Form 8332, or similar statement.
Under current Federal law, a person paying both child support and maintenance can generally take one's children, but not one's ex-spouse, as dependents on their income tax returns.
The payment of child support alone is not deductible from the income of the payor spouse or taxable to the recipient spouse.
Maintenance payments made to a spouse, on a temporary, pre-decree basis or to an ex-spouse, pursuant to a judgment or marital settlement agreement, are tax deductible by the payor spouse and taxable to the recipient spouse.
Likewise, unallocated maintenance awards which commingle maintenance and child support into one monthly figure are deductible by the payor and taxable to the recipient.
Generally, there is no tax gain or loss recognized as a result of the division of property between spouses upon divorce. Thus there is no tax incurred by dividing the property.
If you and your spouse sell your jointly owned residence, absent any contrary agreement, you will each be responsible for reporting one-half of any capital gain.
Another issue to consider is that legal fees and court costs for obtaining a divorce are not deductible, however you may deduct legal fees paid for tax advice in connection with a divorce and legal fees to get maintenance that you must include as gross income. Fees incurred defending against paying maintenance are not deductible. You may also include fees paid during your divorce to other professionals employed, such as appraisers, financial planners and accountants for services to determine the tax implications of your settlement or in helping to obtain maintenance. At the conclusion of your divorce, we suggest that you request a billing breakdown which explains the amount charged for each service performed.