When a court awards alimony (also called spousal support or spousal maintenance), this has tax consequences for both spouses. For the spouse receiving the alimony, he or she must report that as income for tax purposes. For the spouse paying the alimony, he or she is able to deduct those payments, but only if the payments meet the following Internal Revenue Service (“IRS”) requirements: You cannot file a joint return with your ex-spouse You must pay the alimony in the form of cash, check or money order Your ex-spouse has to receive your payment The divorce decree must not state that your payment should not be considered alimony payment If you and your ex-spouse have already formally separated, you cannot be living in the same household You cannot be making the payment after the death of your ex-spouse Your alimony payment cannot be treated as child support or property settlement (both child support and property settlements are not deductible) In addition to child support and property settlements, other examples of payments that would not qualify as alimony include: Payments that come from community property (this is all assets that a couple acquires during the course of their marriage; these assets…
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Claiming a child as a dependent on your tax return offers a number of tax advantages like deductions and credits, but who gets to claim dependents is not always straightforward for divorced couples with children. Only one parent can claim each child as a dependent on the parent’s tax return. This is easy to sort out when one parent has complete custody over a child and the other has periodic visitation rights. The situation becomes more complicated when the couple splits time with their children. Here are some of the variations that can change how the Internal Revenue Service (“IRS”) grants dependent exemptions: A divorce decree from before 2008 can specify who gets the dependent exemption. The decree can do this even to give the exemption to the parent who does not have custody. For couples divorcing after 2008, there is an IRS form that permits the custodial parent to give up the exemption. The parent without custody then uses that completed form when filing his or her tax return to use the dependent exemption. If a child spends the same number of nights with both parents over the course of the year, custody (and ordinarily the dependent exemption) goes…
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In addition to their other benefits, prenuptial agreements can help couples decide how to deal with their taxes. Here are two areas that couples often put into prenups regarding their taxes. Income and Deductions Spouses can specify to whom income and wages go. This is particularly useful when one spouse brings a business to the marriage and the other spouse will not be taking part in running the business. In a community property state like Texas, a family law court will generally assume that income acquired during the marriage belongs to the couple’s marital or community property. A prenup can specify that this is not the case and that certain income belongs only to one spouse. Likewise, there may be particular deductions that are available to the couple. The prenup can specify who will make use of the deduction if the couple files separately. Property Transfers and Tax Consequences Couples often want to include a property transfer in their prenup. The transfer can take place either before they marry or after they divorce. The timing of the transfer will have tax consequences for the couple. Suppose a wife transfers property to her husband before marriage, and, in exchange, the husband…
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For the purposes of their taxes, spouses are single for the entire year during which their divorce becomes final (this means that if your divorce became final on December 31, 2011, for tax purposes, you and your spouse were not married for all of 2011). Divorced spouses have two options when it comes to taxes for their divorce year – file as “single” or as “head of household.” While the most tax benefits are generally available for married couples filing jointly, the next best option for a spouse would be to file as “head of household.” In order to qualify as the “head of household,” a spouse (and the couple in general) does have to meet certain conditions: The two spouses must have lived separately for the past six months The spouse requesting “head of household” status must use his or her home as the main residence for dependents like children or elderly parents (note, though, that the rules for this requirement are complex and filed with exceptions, as, for example, dependent blood relatives do not have to live with you for the entire year for you to qualify as “head of household”) The requesting spouse must have paid more…
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