Divorce and taxes: What you need to know

Even uncontested and amicable divorces are a major drain on the finances, and if tax problems arise in the aftermath, yours could cost you even after the order is issued. Below are some potential divorce-related tax implications you should keep in mind, as well as opportunities for savings.

Spousal maintenance

On the surface, spousal maintenance is straightforward when it comes to taxation. For the payor, these monies are deductible while the payee is required to report it as income. But when payments are made under circumstances that prevent tax authorities from recognizing it as alimony, problems will occur.

The IRS treats your payments to your former spouse as spousal support if they are made in cash as part of a divorce order or similar instrument. They will not be considered alimony if:

• They are not designated as such in a written agreement
• You and your former spouse are members of the same household after the divorce concludes
• The payments are made after your ex passes away

If you are the one receiving spousal maintenance, then you can avoid an unexpected IRS debt by making quarterly estimated tax payments on this income or asking your employer to increase your withholding amount.

Child support

Child support is neither taxable nor tax-deductible, but if you are ordered to pay both child and spousal support and meet the payment requirements only partially in a taxable year, then the payments you make are applied as child support first and alimony second.

What does this mean? Simply put, only the excess over the amount of required child support can be considered alimony and therefore deductible. If you made payments totaling $3,000 but owed $2,500 in child support and $2,000 in spousal support, only $500 can legally count as alimony.

Divorce-related fees

Your legal costs are not tax-deductible, but other fees related to the divorce may be. One example might be professional advice on local, state, or federal taxes as they apply to your divorce settlement. Advice on income, inheritance, property, and estate taxes are all deductible.

These are all potential tax issues that you may encounter in the aftermath of your divorce. While not 100% comprehensive, it does address key points that you need to take into account when you file this year’s taxes. Divorce is difficult enough without IRS problems plaguing you for years afterward, so it is necessary to have a solid understanding of how you will be affected tax-wise by the split, now and in the future.

When you are filing for divorce, be sure to direct any questions and concerns to your New York family law attorney. They will address possible issues and, when advisable, point you in the direction of resources that will inform your decision making. The lawyers of Eskin & Eskin, P.C., who have more than 40 years of combined experience, can help you throughout the entire divorce and family court process. Their numerous referrals are a testament to their understanding of the nuances of the laws and the compassion they show to their clients. Call 718-402-5204 for a free consultation or visit www.EskinAndEskinLaw.com.