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TAX PROVISIONS AFFECTING FAMILY LAW |
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I am currently in divorce proceedings. Can I file jointly with my spouse? |
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Can we, for the year in which we are divorced, file a joint return? |
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We have an income tax refund on account of last year's tax returns. Who gets the refund? |
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I believe my spouse's tax return is not honest. Must I file jointly? |
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What is a personal exemption? |
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I am divorced and the custodial parent. The divorce judgment does not address who can claim the children as exemptions. Can I claim the children as exemptions? |
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Can I still claim the tax exemption if I signed IRS Form 8332? |
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Can I claim the tax exemption if the marital settlement agreement or the divorce judgment allocates the exemption to my spouse? |
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What is the Child tax credit? |
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Can I claim the child tax credit? |
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As the custodial parent, for what other tax credits might I qualify? |
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I pay maintenance payments to my former spouse. May I deduct the maintenance? |
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Can I combine child support and maintenance (alimony) and then deduct the entire amount? |
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A divorce is pending and my spouse and I continue to live in the same home. Can I pay temporary maintenance and deduct it? |
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What if I pay, pursuant to a court order or a written separation agreement, my spouse's rent, the mortgage, tax liability on the residence, or my spouse's college tuition payments? May I deduct? |
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My spouse and I do not want the payments I make deductible, or the payments she receives taxable to her. Can this be done? |
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What tax consequences arise when property is distributed by a divorce judgment? |
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Are distributions from a pension plan taxable? |
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We may have to sell the marital residence as part of the divorce settlement. Is the gain from that sale taxable? |
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Where else can I go to find answers to my tax questions? |
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| Q: |
I am currently in divorce proceedings. Can I file jointly with my spouse? |
| A: |
Yes. If a final judgment of divorce has not been entered by December 31, you are considered married and may file a joint return. |
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| Q: |
Can we, for the year in which we are divorced, file a joint return? |
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No. You must be married on the last day of the year (December 31) to file a joint return. If the divorce settles late in 2004, you can wait until January 2005 to actually divorce. You can go through with the divorce hearing before December 31, but wait to finalize the divorce (entry of the final judgment) until January. In such a case you can file a joint return for the previous year. |
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| Q: |
We have an income tax refund on account of last year's tax returns. Who gets the refund? |
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If you filed joint returns for the previous year, the income tax refund check should be made out to both of you. The marital settlement agreement or divorce judgment should state how you and your spouse will receive or divide the income tax refund check. |
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| Q: |
I believe my spouse's tax return is not honest. Must I file jointly? |
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No. You are able to file as head of household if you did not live with your spouse for the last six months of the tax year and meet the other head of household requirements. If not, then you may file as married filing separately. |
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| Q: |
What is a personal exemption? |
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A personal exemption is a deduction reducing taxable income. You receive one exemption for each dependent you claim. The personal exemption for 2010 is $3,650. |
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| Q: |
I am divorced and the custodial parent. The divorce judgment does not address who can claim the children as exemptions. Can I claim the children as exemptions? |
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Yes. The custodial parent is entitled to the exemption if both parents supported the child. Which parent actually paid support is irrelevant. |
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| Q: |
Can I still claim the tax exemption if I signed IRS Form 8332? |
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No. IRS Form 8332 is a statement by the custodial parent releasing the exemption. If the custodial parent signs Form 8332, then only the non custodial parent can claim the personal exemption for the child. |
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| Q: |
Can I claim the tax exemption if the marital settlement agreement or the divorce judgment gives the exemption to my spouse? |
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Yes and no. The party given the exemption in the marital settlement agreement, or the divorce judgment, is entitled to the exemption and you may be held in contempt of court if you claim the exemption. However, as far as the IRS is concerned, if the custodial parent has not executed a Form 8332, he or she is entitled to the exemption. |
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| Q: |
What is the Child tax credit? |
| A: |
The child tax credit is a $1,000 credit against the tax owed. It is available to parents with children under 17. This credit is set to expire after 2010. |
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| Q: |
Can I claim the child tax credit? |
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Yes. However, you must also claim the exemption for the child. |
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| Q: |
As the custodial parent, for what other tax credits might I qualify? |
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The custodial parent is the only parent who can claim the child and dependent care credit. This is true regardless of which parent claims the tax exemption for the child. This credit is available if your child is under 13 and you pay child care expenses in order to work or seek work. |
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| Q: |
I pay maintenance payments to my former spouse. May I deduct the maintenance? |
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Yes. Maintenance payments are deductible by the payor so long as they are included in the income of the payee. However, in order to be included in the payee's income, the payment must be in cash, under a divorce decree, and the maintenance must terminate upon the death of the payee. Payments that are ordinarily deductible are not deductible if the divorce decree specifically states that the payments are not alimony/maintenance and/or non-deductible. |
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| Q: |
Can I combine child support and maintenance (alimony) and then deduct the entire amount? |
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Maybe. This is known as unallocated maintenance and support. The IRS, however, does not like to be finessed out of receiving taxes, and thus it is very challenging to create an unallocated maintenance and support schedule that the IRS will not challenge. This is not a do-it-yourself kit, and also may be beyond the capacity of a lawyer who is not divorce-tax savvy. |
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| Q: |
A divorce is pending and my spouse and I continue to live in the same home. Can I pay temporary maintenance and deduct it? |
| A: |
No. You may not live in the same household and deduct maintenance payments. |
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| Q: |
What if I pay, pursuant to a court order or a written separation agreement, my spouse's rent, the mortgage, tax liability on the residence, or my spouse's college tuition payments? May I deduct? |
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Yes, but the mortgage, rent payments etc. cannot be deducted if you own the residence. |
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My spouse and I do not want the payments I make deductible, or the payments she receives taxable to her. Can this be done? |
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Yes. Your agreement can state that there is no income tax deductibility or liability for the maintenance payments. |
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| Q: |
What tax consequences arise when property is distributed by a divorce judgment? |
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The general rule is that no gain or loss is recognized when property is transferred to a former spouse, so long as the transfer is incident to divorce. In order to be incident to divorce, the transfer must occur within one year after the divorce judgment is entered and the transfer must be included in the divorce judgment. |
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Are distributions from a pension plan taxable? |
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Yes, but the tax may be avoided by a rollover to an eligible retirement plan. In many divorces one spouse's pension plan is one of the most valuable assets in the marriage, and the other spouse may be awarded part of the pension plan. There are several options the recipient of a part of a pension plan can exercise. The first option, and one to be avoided if at all possible, is to cash out the distributive interest in the pension plan. A cash out means you will pay income tax on the entire amount of the distribution plus a 10% early withdrawal penalty. The second option, under which you pay no tax or penalty, is to cash out your interest in the pension plan, then roll it over into another eligible retirement plan, such as an IRA: The rollover must take place within 60 days for the distribution to be tax-free. The third option is to take your interest in the form of a Qualified Domestic Relations Orders (QDRO). Under a QDRO, the pension plan administrator must carve out for you your interest in your spouse's pension plan, and you will have the same rights in regard to the pension plan as does your spouse. |
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| Q: |
We may have to sell the marital residence as part of the divorce settlement. Is the gain from that sale taxable? |
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Yes. However, gain from the sale of a property is excluded from income if it was owned and used as the taxpayer's primary home for two of the last five years. This exclusion is limited to $250,000, or $500,000 in the case of a joint return. On a joint return, the taxpayers can exclude the full amount as long as one spouse meets the ownership requirement and both spouses meet the two year use requirement.
In order to meet these requirements, the taxpayer will be treated as using the property as a primary residence during any period that their spouse or former spouse is granted use by a divorce or separation agreement. |
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Where else can I go to find answers to my tax questions? |
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The IRS has a website at www.IRS.gov. Publication 504 provides additional guidance for divorced or separated individuals. |
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The income tax consequences of a divorce, especially one involving substantial income and/or substantial assets, are legally complex. You should receive advice from a lawyer who is divorce-income tax knowledgeable, or an accountant.
Updated 15 February 2010 |
