Important Tax Considerations in Divorce

Posted on Mar 7, 2013 by Katie Carter

Divorce attorneys are, with very few exceptions, not tax attorneys. However, that does not mean that we have zero experience when it comes to tax issues. There are specific tax-related issues that come up in a divorce.

Spousal Support and The Mortgage Interest Deduction

Spousal support is taxable to the person receiving it and tax deductible to the person paying it. If you receive any amount of spousal support, you’ll have to set aside a portion of that money every month to pay your taxes. If your husband is paying spousal support, you can bet that he’s going to claim it on his taxes.

The one exception to this rule is when, instead of paying spousal support directly to wife, husband pays the mortgage. He can’t double deduct and claim the spousal support he has paid as well as the mortgage interest deduction. In these cases, he can only deduct spousal support. It becomes like he was paying the exact amount of the mortgage payment directly to you every month. Even though you ultimately pay the mortgage with it, it’s your money because it’s your spousal support, and it’s just like you paid the mortgage yourself. The fact that he pays the mortgage company directly doesn’t change the actual nature of the money. He can deduct the spousal support; you can deduct the mortgage interest deduction.

Child Support and The Dependent Exemption

Child support is different, because it is not taxable to the person receiving it or deductible to the person paying it. As far as the dependent exemption goes, only one parent can claim the child on his or her taxes. As far as the IRS is concerned, the person who claims the child should be the custodial parent—the parent with whom the child spends the most time. Most of the time, though, the parents agree to split the exemption somehow. It’s common in separation agreements for there to be a provision that one parent claims the child in the even years, and the other parent claims the child in odd years. No matter what, both parents can’t claim the child in the same tax year.

It’s tax season, so these are answers to a couple of things you may be wondering. Divorce, and sharing children and property, makes these things just a little bit more complicated than they would otherwise be, but it’s still do-able. In the majority of circumstances, couples are able to come to an agreement about how to handle everything, and that sets them up well for the years to come.