Tax Implications of Divorce
Going through a divorce is never as simple as merely ending a relationship. From having to divide assets to finding the right child custody lawyer, things get complicated. Unfortunately, the tax code is even more complex, and when the two clash, there can be huge consequences for everyone involved. That's why anyone seeking to end their marriage should fully understand the tax implications of divorce.
A working parent may be used to receiving the child tax credit when filing taxes, but after a divorce, this could change. A child custody lawyer can explain the full details, but in a nutshell, it is the custodial parent who typically has the right to file for the child tax credit. The custodial parent is usually the one who has the child for the majority of the year.
As with many things in divorce, however, this is not set in stone. The noncustodial parent can claim the child on their taxes if the custodial parent signs Form 8332. The non-custodial parent will still have some restrictions, such as the inability to claim child care expense credits, but they will be able to receive the child tax credit.
Also, you want to read the court orders very specifically regarding which parents is entitled to claim the child as a dependent. This was taken into account when child support was calculated, so depending on how it was calculated, will certainly impact the amount of child support you receive.
Alimony payments are another likely outcome of divorce, and just like the child tax credit, there are tax implications when divorce results in alimony decrees. The person required to pay alimony is allowed to deduct these payments on their taxes. They should never try to disguise other expenses, such as child support payments, as alimony.
The former spouse who is receiving alimony payments will also have to treat tax time differently. Alimony is treated as a form of income, and this means that it must be claimed when filing taxes. A spousal support lawyer can help clear up any confusion in this regard.
Maintaining health insurance is a necessity thanks to the extraordinary costs of healthcare. During a divorce, a judge may decide that one parent must cover a child's medical expenses. This parent may not even be the one to receive custody, and covering the child's healthcare costs does not necessarily mean they are eligible for the child tax credit. Even so, they can still deduct their child's medical expenses.
It should also be noted that taxes are filed based on a person's status at the end of the year. This means that, if the divorce was not finalized and a spouse was still on the other's health plan on December 31, the deduction can be claimed. If someone pays for their own insurance through their former spouse's insurance policy, as allowed by the Consolidated Omnibus Budget Reconciliation Act, this is not deductible by the spouse with the initial policy.
While a divorce lawyer may not file taxes for a career, they can certainly help their client understand the benefits of filing taxes as head of household. Standard deductions are larger and tax brackets are more beneficial for those filing under this status. Unfortunately, both of the former spouses may not be eligible to do so.
To be eligible for head of household status, a person must not have lived with their former spouse during the second half of the tax year. Additionally, at least one qualifying child must have resided with the parent for at least half the year. A child custody lawyer can explain that this is true even if a person does not have sole custody of the child in question.
When going through a divorce, former spouses will face everything from tax implications to the need for child custody lawyers. No part of a divorce is easy, but with legal help, the transition can be much smoother. Contact the Family Law Attorneys at the Law Offices of H. William Edgar for a free initial consultation.