Tax Season & Divorce: What You Should Know Before Filing This Year

Tax season can be stressful under the best circumstances. When you are going through a divorce or recently finalized one, filing your taxes can feel even more overwhelming. Decisions made during tax season can have lasting financial consequences, which is why it is important to understand how divorce affects your tax situation before you file.

Whether you are separated, in the middle of negotiations, or newly divorced, the choices you make now can impact cash flow, settlement outcomes, and your long-term financial stability. Below are key tax topics to be aware of before filing this year.

Filing Status Matters More Than You Think

One of the first questions to answer is your filing status. Your status is determined by your marital situation as of December 31 of the tax year.

If you were legally married on December 31, you may still be required to file as Married Filing Jointly or Married Filing Separately, even if you were living apart. If your divorce was finalized before the end of the year, you will generally file as Single or Head of Household if you qualify.

Filing status impacts tax brackets, deductions, credits, and overall tax liability. In some cases, filing jointly can result in lower taxes, but it also creates shared responsibility for any errors or unpaid taxes. This is an important consideration during divorce, especially if there are concerns about transparency or compliance.

Claiming Dependents and Child-Related Tax Credits

For divorcing or divorced parents, claiming dependents is one of the most common areas of confusion and conflict.

Only one parent can claim a child as a dependent in a given tax year. This affects eligibility for tax credits such as the Child Tax Credit, Earned Income Tax Credit, and education-related credits.

Divorce agreements often specify which parent can claim the child and in which years. If your agreement is not finalized or is unclear, it is essential to coordinate before filing to avoid rejected returns or future disputes. Claiming a dependent incorrectly can trigger IRS notices and delays.

Alimony and Child Support Tax Treatment

The tax treatment of support payments depends on when your divorce agreement was finalized.

For divorces finalized after 2018, alimony payments are not deductible by the payer and are not considered taxable income to the recipient. This change significantly affects cash flow and should be factored into settlement negotiations.

Child support payments are not deductible and not taxable, regardless of when the divorce occurred. Mixing up these classifications or reporting them incorrectly can lead to problems with the IRS.

Division of Assets and Capital Gains Considerations

During divorce, assets such as homes, investment accounts, and retirement funds are often divided. While many transfers between spouses incident to divorce are not immediately taxable, future tax consequences still matter.

For example, selling a home or liquidating investments after divorce may trigger capital gains taxes. The spouse who receives an asset also receives its tax basis, which can significantly impact future taxes.

Understanding the true after-tax value of assets helps prevent uneven settlements that may look fair on paper but are not financially equal long-term.

Retirement Accounts and Qualified Domestic Relations Orders

Retirement accounts are frequently among the most valuable marital assets. Improper handling can lead to unexpected taxes and penalties.

A Qualified Domestic Relations Order, or QDRO, is required to divide certain retirement plans without triggering taxes or early withdrawal penalties. Timing and accuracy matter. Withdrawing funds before the QDRO is properly executed can be costly.

Tax season is a good time to confirm that retirement divisions are being handled correctly and that reporting aligns with your divorce agreement.

Timing Can Affect Your Divorce Strategy

Filing your taxes before a divorce is finalized can sometimes impact negotiations, support calculations, or settlement terms. In other situations, delaying filing or requesting an extension may be beneficial.

Every situation is different, and rushing to file without considering the broader financial picture can lead to missed opportunities or unintended consequences.

How a CDFA® Can Help During Tax Season

A Certified Divorce Financial Analyst® (CDFA®) helps you understand how tax decisions fit into the bigger picture of your divorce. This includes analyzing filing options, reviewing settlement terms through a tax lens, projecting future tax impacts, and helping you avoid common and costly mistakes.

While a CDFA® does not replace a tax preparer or CPA, they play a critical role in coordinating financial strategy during divorce, especially during tax season.

Final Thoughts

Tax season is not just about compliance when you are going through a divorce. It is an opportunity to make informed decisions that protect your financial future.

Understanding filing status, dependents, support payments, asset division, and retirement considerations before filing can help you avoid surprises and reduce stress. With the right planning and professional guidance, you can move through tax season with clarity and confidence while laying a stronger foundation for life after divorce.

Take Control of Your Future

At Leeward Divorce Financial Planning, we help individuals navigate the financial complexities of divorce so they can focus on building a secure future. If you’re seeking greater confidence in your financial plan, we’re here to guide you.

Kimberly can provide step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, our team will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

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This information is not intended to be a substitute for seeking legal advice from an attorney. For legal or tax advice please seek the services of a qualified attorney and/or qualified tax professional.