How does divorce affect my taxes?

Divorce can have significant tax implications that are important to understand. One of the first changes is your filing status. For the tax year in which your divorce is finalized, you generally file as single or head of household if you qualify. Your filing status is determined by your marital status on December 31 of the tax year.

Alimony tax treatment changed significantly after the Tax Cuts and Jobs Act of 2017. For divorce agreements finalized after December 31, 2018, alimony payments are no longer deductible by the paying spouse and are not considered taxable income for the receiving spouse. Agreements finalized before this date follow the old rules unless modified.

Child support payments are never deductible for the paying parent and are never taxable income for the receiving parent, regardless of when the agreement was made.

Property transfers between spouses as part of a divorce settlement are generally not taxable events at the time of transfer. However, the receiving spouse takes on the original cost basis, which means they may face capital gains taxes when the asset is eventually sold.

The dependency exemption for children is typically claimed by the custodial parent, though this can be negotiated as part of the divorce agreement. Head of household filing status, which offers more favorable tax rates, is available to unmarried taxpayers who pay more than half the cost of maintaining a home for a qualifying dependent.

DIVORSAY's ClearSplit calculator factors in tax implications when modeling asset division scenarios, helping you understand the after-tax value of different settlement options.