When a marriage ends, it brings emotional and personal changes but also significant financial adjustments. In particular, divorce can be complicated when it comes to dealing with taxes. From changing filing status to issues regarding the separation of property, nearly every aspect of a divorce can influence your tax obligations. As tax rules and divorce laws can often overlap in complex ways, consulting with a knowledgeable and experienced family law attorney is essential right at the start of your separation. A skilled Tennessee family law attorney can help you navigate these issues, protect your financial interests, and ensure that your divorce settlement aligns with current tax regulations, help giving you peace of mind both now and in the future
Determining the Right Tax Filing Status After Divorce
One of the first changes many newly divorce people face is how they will file their taxes moving forward. If you were previously filing your taxes jointly with your spouse, that option disappears once your divorce is finalized. Instead, you will now need to file as either “single” or “head of household,” depending upon your living and caregiving situation. Filing as head of household may offer more favorable tax brackets and a higher standard deduction, but it’s only available to those who meet specific requirements, such as paying more than half the cost of maintaining a home for a dependent child or children.
Tax Rules for Divorced Parents- Who Gets to Claim the Kids?
Of course, when parents’ divorce, questions about child support and who gets to claim the children for tax purposes can quickly arise. Child support payments are not considered taxable income for the receiving parent, nor are they tax-deductible for the paying parent. Only one parent may claim a child as a dependent in any given tax year, which can affect eligibility for credits such as the Child Tax Credit or the Earned Income Tax Credit
As for as who can claim the child as depended on their taxes, generally the custodial parent is entitled to claim the child, unless a written agreement says otherwise. As such, in some child custody agreements, the non-custodial parent can claim the child as a dependent under Form 8332. It is common, especially in cases of joint custody, that parents choose to alternate who can claim the child as a dependent for a tax credit each year. In any case, disputes may arise over who gets to claim which child and in which year. This is a serious issue that should be clearly addressed in the divorce settlement to avoid confusion and future conflict.
Separation of Property and Its Impact on Taxes
Another important way divorce and taxes are connected is through the separation of property. Property transferred between spouses due to divorce is typically not taxed at the time of transfer, but taxes can arise later. For example, if one spouse is awarded the family home and later sells it, any profit from the sale may be subject to the capital gains tax, depending on how much the home increased in value and how long it was owned and lived in.
Similarly, any retirement accounts such as 401(k)s or pensions often require careful handling. If you are planning to receive a share of your spouse’s retirement funds, it’s vital that the transfer is handled through a Qualified Domestic Relations Order (QDRO) to avoid early withdrawal penalties or taxes. Even with a QDRO in place, the receiving spouse will be responsible for taxes once the funds are received. As such, it is crucial to make sure you have a knowledgeable Tennessee family law attorney by your side to make sure your interests are protected in the asset division process.
Contact J. Ryan Johnson Law for Tax Advice in Your Tennessee Divorce
The moment separation becomes a possibility; it is important to begin thinking about the financial and tax consequence. At J. Ryan Johnson Law, we understand the potential tax implications from a divorce, which sometimes continue long after the legal process is finalized. That is why we will advocate for your financial well-being from start to finish, so we can help you avoid costly mistakes. Contact us to speak with an experienced Tennessee divorce attorney today.
