Robert A Bonavito Publishes “Top Ten Divorce Tax Issues”Posted on August 18, 2012 by
Category: Matrimonial & Divorce
By Robert A. Bonavito, CPA MBA, PFS, CVA, ABV, CFE, CFF
In dealing with matrimonial issues for twenty five years, I have seen these ten tax areas overlooked. Questions or comments on this article can be e-mailed to firstname.lastname@example.org.
1. The cost of getting a divorce can be tax deductible
Legal fees for a divorce are not deductible, but tax advice is. In order for the tax advice to be deductible it should be itemized on the attorney invoices. Some items that are deductible are alimony, property settlement tax advice, tax filing status, cost to prepare and file a deed (to put title in a spouses name).
2. Sometimes you may have to file gift tax on property settlements
If you do not meet one of the following exceptions, gift tax returns must be filed.
- Part of settlement of marital support right
- Qualifies for the marital deduction
- Made under a divorce decree
- Made under a written agreement
- Qualifies for the annual exclusion $13,000
3. The IRS likes to challenge alimony; make sure you meet these requirements
In order for payments to be considered alimony it must meet these requirements.
- Paid in cash, checks, etc.
- Divorce instrument does not designate the payment as not alimony
- The spouses are not members of the same household at the time the payments are made
- No requirement to make payment after the spouses death
- The payment is not treated as child support
4. Consider married filing separate during the divorce process
Sometimes this is a good idea; especially if one spouse has credit or tax issues that you do not want to be involved with.
Some of the benefits are; you can file even if only one spouse had income and you will only be responsible for your tax liability. Be aware that filing separate returns may result in a higher tax. Also remember the following:
- If one itemizes, you both must
- No child and dependent credit
- Capital losses limited to $1,500 rather than $3,000
If you decide not to get divorced after you’ve filed separate returns, you have three years to file amended married filing joint returns.
5. Notify the IRS of your new address
You need to file Form 8822; change of address.
6. Injured spouse allocation
If the IRS keeps an expected refund because of a tax issue with your spouse, you can use Form 8379 to receive your fair share of the refund.
7. Exemptions; these can be worth over $30,000
Generally it is better planning for the divorced spouse, with the least amount of income to claim the children.
Most of the time the child is the qualified child of the custodial parent, unless all three of these are met:
- Parents are divorced
- Paid half of support
- Custody of one or both parents
Or have the custodial parent sign a written declaration that they will not claim the child or children (Form 8332).
8. If alimony decreases during the first three years after the divorce you may have to recapture the alimony. Reasons for recapture are:
- Change in divorce or separation agreement
- Failure to make timely payments
- Reduction in your ability to provide support
- Reduction in spouses support needs
9. Request for innocent spouse relief Form 8857
If your spouse has major tax problems with the IRS consider filing for innocent spouse relief.
10. Once the divorce is final, notify the IRS or your new status. File a new W4 with your employer.