Will a divorce affect my taxes?

If you’re divorcing this year, you and your spouse will likely be filing a joint income tax return for the last time. It’s not too early, however, to start thinking about Tax Year 2024 and next year, when you’ll be filing your returns separately (assuming your divorce is final by year-end).

It’s wise to discuss some elements of your income taxes as you divorce – particularly if you’re going to be co-parenting. This will help you avoid unnecessary issues when you each file your taxes moving forward.

Your filing status

If your divorce is final by Dec. 31 of this year (and you haven’t remarried), you need to file as either “single” or “head of household.” The latter will allow you to pay less in taxes. However, to qualify, a child or other dependent must live with you for more than half the year and you must pay more than half of your household expenses that year.

Claiming your dependent child(ren)

When parents live separately and share custody of a child, only the parent who has them for the majority of the year can claim them on their taxes as a dependent. If parenting time is divided 50-50, you just need to agree that one parent has them one day more than half the year. Some co-parents alternate taking this benefit each year. If you have multiple children, you can each claim one or more. The custody order should back up what you report on your taxes, however.

What is “incident to the divorce?”

The IRS recognizes that it’s common in divorce for spouses to transfer separately or jointly owned property to one another. Fortunately, it doesn’t require people to report capital gains or losses on property transferred “incident to the divorce.” No documentation is needed for property transferred within a year after the divorce is final. After that (up to six years), any property transfers must be listed in the divorce agreement to qualify as “incident to the divorce.”

It’s wise to get tax guidance when you file your first income tax returns following your divorce – not just to help ensure that you’re not making mistakes but to help as you enter this new phase of your life. As noted, it’s not too early to think about tax considerations as you work with your legal team to get the best possible settlement.