When divorce happens, it’s best to understand tax implications in advance

Are you or is someone close to you very recently divorced or considering divorce? There’s a lot to think about, not the least of which may be tax rules and implications. Tax rules regarding divorce and separation can change and recently have. These rules affect 2019 tax returns.

It’s all very complicated, making an often-difficult situation even more trying. For everything you ever (or, probably, never) wanted to know about divorce and taxes, visit the State of Wisconsin’s site at: revenue.wi.gov

Filing status is the most basic consideration and something you’ll want to understand the basics of. The IRS considers you unmarried for the year if your divorce, annulment, or separate maintenance decree was finalized by the last day of the year. “Married filing jointly” or “Married filing separately” can no longer be your filing status when you file your taxes. If you have kids or other dependents living with you, you may qualify to use the “head of household” filing status; otherwise, you’ll have to file as “single.” In either case, you’ll be using a different set of tax brackets than you did during your marriage. If it’s an annulment not a divorce, it’s a bit more complicated and something we can discuss further.

Tax reform did not change the tax treatment of child support payments which are not taxable to the recipient or deductible by the payer.

For agreements executed beginning January 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, nor are they includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after December 31, 2018.

For agreements executed on or before December 31, 2018 and then modified, the new law applies if the modification does these two things:

  • Changes the terms of the alimony or separate maintenance payments.

  • Specifically states that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Again, tax reform has made an already complicated situation even more so. If you have any questions about the tax rules surrounding divorce and separation, don’t hesitate to call me personally or contact me via email at Gretchen@vickneycpa.com. Let’s talk.

As always, the tax, business and accounting professionals at Vickney are here to help. Call us
at (262) 673-6322 or email me at Gretchen@vickneycpa.com.