BASIC TAX EFFECTS OF DIVORCE, IN A NUTSHELL

The impact of federal tax rules on divorce are often misunderstood or misinterpreted.  A few of the more common tax effects of divorce are as follows:

• Child support payments have no tax effect. Payments received are not taxable to the recipient, and payments made are not deductible to the payor.
• Alimony payments have reciprocal tax effect to both the payor and the recipient. Alimony payments made to a former spouse under a divorce decree are fully deductible to the payor, without regard to whether the payor itemizes deductions. Voluntary payments made to a former spouse outside a divorce decree are not deductible. Alimony payments received by a former spouse under a divorce decree are taxable to the recipient. In a tax sense, alimony is a formal reallocation of taxable income from a payor to a recipient.
• Joint federal tax filings are permissible only if the filing spouses were married as of the last day of the applicable tax year. For example, a couple who divorce on September 15, 2016 are not eligible to file a joint federal income tax return for the 2016 tax year, but must file separately for 2016. Couples often strategize the entry of a divorce until after the New Year in order to take advantage of the tax benefits a joint filing might provide.
• If your name legally changes as a result of your divorce, you must inform the Social Security Administration, as the name on your tax return needs to match the corresponding Social Security number. Not doing so risks unintended problems in the processing of your return, including the payment of any refund.