It’s no secret that divorce changes your life in many complex ways – from parenting and friendships to finances. And while taxes may be the last thing on your mind as you figure out your life as a single, ending your marriage has important tax implications that you shouldn’t ignore.

You’ll need to consider your filing status, the tax implications of property division, what deductions and credits you qualify for, and how custody and support factors into the equation. With so much to consider, it’s best not to wing it; instead, consider consulting with a tax professional to make sure you get it right.

How divorce affects your filing status

If you’re still married at the end of the filing year – for example, your divorce isn’t finalized until after Jan. 1 2023, and you’re filing for the tax year 2022 – you’re still considered married by the IRS and will have to choose your filing status, said Wayne Bechtol, a senior tax accountant in Austin, Texas and consultant at Fiona.com. In other words, your marital status on Dec. 31 every year determines your tax filing status options for the entire year.

These are your filing options:

  • Married filing jointly: Your income is combined with your spouses, and your combined allowable expenses are deducted. Filing jointly typically reduces your tax liability more than married filing separately, but you must be legally married as of Dec. 31 of the reporting year.
  • Married filing separately: In this scenario, each spouse will file their own tax return along with individual income, deductions, and credits. In addition to having control over your own tax return, filing separately allows you to avoid being responsible for your spouse’s tax obligations, said Michael Hammelburger, CPA, the CEO of The Bottom Line Group in Baltimore, Maryland. 

But tax brackets are typically higher filing under this status than they are for married individuals filing jointly, so you may pay more in taxes, he said. You must be married on Dec. 31 to use this filing status.

  • Head of household (HOH): Usually, your divorce must be finalized to file as HOH. But even if your divorce isn’t final, you may be able to file as head of household if all of the following are true:
    • Your spouse didn’t live in the same home as you for the last six months of the year.
    • You paid more than half the cost of maintaining your home for the year.
    • Your home was the main place of residence for your dependent child for more than half of the year.

Filing as HOH gives you lower tax rates and higher standard deductions than filing single or married filing separately, said Jenna Lofton, CFA, founder of stockhitter.com. But you have to be sure to meet the eligibility criteria, she said.

  • Single: You can file as single as long as your divorce is final by Dec. 31. It’s a more simplified process than filing HOH, but you’ll have higher tax rates and lower standard deductions, Lofton said. 

To figure out which filing status makes the most sense for you, check out the What Is My Filing Status tool on IRS.gov.

Tax tips for claiming child dependents after a divorce

Maybe you’re not sure whether you or your ex can claim your children as dependents on your taxes. If you’re filing separately, whichever parent the child resides with for more time (over 6 months) during the year can claim them, said James Wang, CPA, a tax specialist in Pasadena, California, and content producer at CreditYelp.com. 

However, if the custodial parent signs a written declaration releasing the claim for the child, the noncustodial parent can claim them as a dependent, Yang said, adding that some parents may choose to share or split the tax benefits. Child support is paid from one spouse to the other in order to help them with necessities including food, shelter, clothing, maintenance, healthcare, and more, Bechtol said. Child support payments aren’t tax-deductible to the payor and recipients don’t report them as income, Lofton said.

Dividing assets in a divorce: How to minimize tax liability

In the case of an asset transfer (such as a house) from one spouse to the other after a divorce, the recipient does not have to pay any tax on the transfer, Bechtol said. However, if the recipient sells the property afterwards, capital gains tax applies to the appreciation before and after the transfer, he said.

If the divorce decree specifies a transfer of retirement accounts for one spouse to the other, a QDRO (qualified domestic relations order) will be sent to the paying spouse’s employer spelling out how the retirement will be split, said Aviva Pinto, a certified divorce financial analyst and Managing Director at Wealthspire Advisors in New York. This is done after the divorce is finalized as part of property division, she said, adding that IRA transfers do not require a QDRO. If you’re the receiving spouse, you may need to cash out a portion of the retirement account based on your circumstances. But keep in mind that if you take an early withdrawal on these assets (before the age of 59 ½) you’ll have to pay federal taxes on the distribution, Pinto said. That said, it’s possible to avoid the additional 10% early withdrawal penalty – just be sure to pull out the proceeds you need upon distribution of the assets, she said.

Alimony after divorce: Tax implications you need to know

Alimony, also referred to as spousal support, is a payment made by one spouse to the other following a divorce or legal separation, Hammelburger said. According to the IRS, as of Dec. 31, 2018, alimony payments (spousal support) are no longer tax deductible by the payor, and they aren’t required to be reported as taxable income by the recipient. But if your divorce was finalized prior to this date, the payor is eligible for a tax deduction for their payments and the recipient must record the payments as income on their tax return.

Seek advice from a tax expert

Divorce can affect your eligibility for deductions and credits, like the child tax credit, earned income credit, and mortgage interest deduction, says Lofton. This largely depends on factors like your filing status, income, and dependency claims, she said. 

Divorced couples should seek professional advice from a tax expert to navigate the tax implications of divorce, Bechtol said. Not only can choosing an incorrect filing status affect your deductions and credits, the IRS can levy penalties for wrongful disclosure, even if they’re unintentional, he said. 

The bottom line? Getting divorced can complicate your taxes. Getting the advice of a tax expert can ensure you avoid filing errors and keep you from paying more than your fair share.