Divorce and Taxes

There are a variety of tax issues that arise in the context of a divorce. Your lawyer should be able to at least flag these issues for you so that clients can consult with an accountant or other professional. Some of the issues to consider are:

Tax dependency exemptions: Who will claim the children as dependents on their federal or state tax returns? Not only are the exemptions worth money on a yearly basis but so are the tax credits which can only be used in conjunction with the dependency exemptions.

The decision concerning who claims the child or children as dependents does not have to be connected to the children's primary residence or to the primary custodian. The tax dependency claim can be transferred from one parent to the other or alternated between them

Dependency exemptions may not be worth much if the spouse's income is low. There is also a phase out for the child tax credit for high income as well. It is worth considering the tax impact before agreeing on how to divide the dependency exemptions.

Head of household: This exemption can be switched between the parents. In order to qualify, the child has to have spent over 50% of his or her time at that parent's house.

During the year of the divorce, the parties should review whether it is advisable to file jointly or individually.

Alimony: If alimony is involved, what is the tax impact of calling the support or part of the support alimony? There are IRS rules around what qualifies as alimony and parties should seek the advice of an accountant to assure that their designation of alimony will not be challenged by the IRS.