Divorce can be challenging enough on its own, but throw in the financial complexities it can cause for those with high assets and the situation can become an even bigger headache. One particular complication divorce can cause comes in a form that most people probably don’t think of right away: the IRS. Tax time doesn’t have to be a complete nightmare for divorcing Ohio couples if they keep a few key things in mind, especially when it comes to their filing status, child exemptions, alimony and child support.
The first thing to remember is that the IRS only cares about your official marital status as of Dec. 31 each year. If your divorce won’t be final until January, the IRS still considers you married for the prior year’s filing purposes. Divorcing spouses whose divorces will be final by the last day of the year can go ahead and check the “single” box under marital status. The IRS does provide an exemption where separated parents can claim the head of household status to receive greater deductions. Spouses must have paid for over half of the year’s housing costs, lived separately from the other spouse for at least half of the year, and dependent children must have lived with them for more than half of the year.
Speaking of dependent children, divorcing couples often question which parent is going to get to claim their children come tax time. While the law will typically answer that question by allowing the parent who has the children living with them for more than half of the year to claim them on their taxes, spouses can agree to allocate child exemptions differently. This usually just requires that a signed declaration setting out which parent gets to claim which child be signed.
Ohio couples going through divorce may also wish to know how the IRS views payments going from one spouse to the other. Usually, alimony is deductible for the person paying it, and counts as income earned by the spouse receiving them. Divorcing couples can agree to reverse that situation if they so desire. When it comes to child support, on the other hand, payments are not typically treated as deductible or earned income. This may be useful for couples to keep in mind when it comes time to negotiate their divorce decrees.
Source: DailyFinance, “Don’t Let Divorce Destroy You at Tax Time,” Dan Caplinger, July 23, 2012