If you’re newly separated, going through a divorce, or thinking about filing for divorce, it’s normal to have a lot of questions about how it will affect your taxes and investments. Filing taxes after divorce can feel confusing at first, with new rules and that nagging worry that you’re getting something wrong or paying more than you should. The good news is it doesn’t have to stay that way. With a simple plan and the right tax strategy, you can avoid common mistakes, keep more of your money, and feel a lot more confident about what comes next. 

In this guide, we will explain some important things to keep in mind when filing taxes after divorce, as well as practical tips to keep you on track. Let’s get started.  

Common Mistakes 

Without proper guidance, newly divorced individuals can find themselves making simple, preventable mistakes that can cost them down the line. Here are some of the easiest mistakes to make when filing taxes after divorce: 

• Filing with the wrong status 

• Both parents claiming the same child 

• Incorrectly handling alimony  

• Incorrectly handling child support 

• Not updating withholdings 

• Mishandling retirement accounts 

• Failing to update personal information 

This is by no means an exhaustive list, and things can get exponentially more complicated if you and your spouse had jointly owned businesses, rental properties, or unusual assets. In those circumstances, we recommend speaking with a trustworthy tax advisor, like the team at PaulHood, to learn more about the options for your unique situation.  

If you’re not ready to work with an advisor yet and simply want to understand how divorce may affect your taxes, here are a few key things to watch for. 

Filing Status 

If your divorce was finalized before the end of the year (December 31^st), you can no longer file jointly with your prior spouse. Instead, you will file as single or head of household.  

So how do you know which status to file under?  

Most divorced individuals will likely only qualify to file as single. Head of household status is reserved for individuals that meet certain requirements.  

To qualify as head of household, you must have paid more than half the cost of running your home for the year. Your home must also have been the primary residence for a dependent for more than half the year, and you cannot be the noncustodial parent. The one exception is if you have a parent that qualifies as a dependent, who is allowed to live separately from you. This applies even if you signed a Form 8332 and are allowing the noncustodial parent to claim your children on their taxes. Lastly, to qualify, your spouse cannot have lived with you for the last six months of the tax year. 

The semantics of these situations can be a bit complicated if you have an unusual family situation. If you’re unsure if these conditions apply to you, it’s always best to speak with a tax expert. 

Claiming Dependents 

If you have children, it’s important to know how to claim your dependents. Who is allowed to claim the children as dependents depends on the parent’s custodial status (custodial vs. noncustodial). The custodial parent is whichever parent has primary custody of the child during the tax year.  

Typically, the custodial parent will be the one claiming the minor children on their taxes. However, the noncustodial parent might be eligible to claim child tax credits if they have the custodial parent’s permission.  

Health Insurance and Tax Credits 

If you bought your health insurance for the year through a government-run marketplace (like healthcare.gov), you will need to inform them of any changes to your family structure. New developments like divorce can impact your monthly payments if you were previously qualifying for a premium tax credit.  

If you’re unsure how your separation will impact your healthcare coverage and monthly payments, you can reach out to the customer service department for the broker you bought your plan through to learn more about what is required of you. 

Retirement Accounts 

If you’re getting divorced and have made contributions to a retirement account during your marriage, you may be eligible for a Qualified Domestic Relations Order (QDRO). A QDRO helps you split retirement accounts that normally have associated penalties, taxes, or age requirements, without incurring these costs. 

Typically, this will be a part of your divorce agreement, which will then instruct the administrators of your retirement accounts on how they are to split funds between you and a former spouse. They will have to follow the specific instructions laid out by the court, which will vary on a case-by-case basis depending on how much each spouse is awarded.  

Alimony and Child Support 

Alimony payments are not tax deductible by the paying spouse and will not be considered taxable income for the recipient if the separation agreement was made after December 31, 2018, or if modifications were made to the agreement after this date. Alimony assigned in agreements executed before January 1, 2019, will be deductible to the payer and taxable for the recipient if no subsequent modifications were made after that date.  

Child support is not deductible to the payer and will not be considered income to the recipient. The amount owed by the paying spouse will be laid out in the divorce agreement, but can change based on shifts in income, circumstances, and custody which will impact filing for the tax year the changes are made in. 

Filing Taxes After Divorce? We Can Help 

Filing taxes after divorce can get complicated fast. Navigating rules, regulations, and deductible criteria can be exhausting and stressful, especially if your situation is more complicated than most. The good news? You don’t have to do it alone.  

At PaulHood, our tax experts are equipped and ready to help you during stressful times in life. Whether you’re filing taxes after divorce or just wondering how a potential separation might impact your filing, we’re here ready to assist you. With over 30 years of experience in the tax industry, our team can walk you through your options and leave you feeling confident and ready to move forward.  

Click here to schedule a call with one of our team members today. Stop guessing, and start planning a tax strategy that works for you.