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Divorce: A Taxing Experience

There is no question that divorce can be a truly life-altering experience. Your finances may change radically. Your last name may change. You may even choose to move to a new location, remarry, and build a new family with a new spouse.

Even the way you are taxed by the federal government may change. You can still file as an individual even if your divorce is not final by the end of the fiscal year. Whether this makes sense is a personal matter that you should discuss with your tax preparer. Depending on the circumstances, it may make sense to file as either an individual, married but separate or together as a married couple.

While tax laws are complex, certain basic federal rules cover child support and spousal support. Essentially, child support is tax-free to the recipient; he or she does not have to pay taxes on the money received for the support of a child. This rule stands in contrast to that covering spousal support, which is taxable to the recipient. The payor spouse cannot deduct child support payments that he or she makes, yet the payor can deduct spousal support payments. Further, if one parent provides at least 50% of a child’s support during the tax year, he or she can claim the child as a dependent for tax purposes. Typically this determination is a function of with whom the child lives during the tax year in question, the parent with more than 50% of the timeshare (even 50.01%) being entitled to the dependent exemption. Note, however, that the party entitled to the exemption is allowed to give it to the other parent if the proper procedures are followed.

If you are going through a divorce, make sure to discuss tax matters with your attorney. You and your ex may be able to agree on an arrangement that will allow you both to save money in the long run.