What You Need to Know about Taxes and Divorce: Part II

By Nottage and Ward on April 13, 2011

In a previous blog post, we addressed the impact divorce has on filing taxes, and discussed what happens to taxes for a primary residence as well as what marital status a person should claim depending on their situation. Now, we will touch on other factors one must consider when paying their taxes after divorce, including child custody and alimony.

Recently, custody arrangements have become very complicated, with many parents sharing custody of their children over weekends or during the week. These arrangements become problematic in that IRS regulations and the most recent version of the tax code do not precisely define custodial parent or custody. In general, someone can only claim their children as dependents if they were the designated custodian by court order. If no such agreement or order exists, or if someone has joint custody of their child, the custodial parent is considered to be the parent that had physical custody of the child for the majority of the year. If custody is shared 50-50, many divorced couples alternate who claims the child on their taxes from year to year in order to share the tax benefit. It is illegal for both to claim the same child as a dependent in the same year. If there is more than one child, many tax experts suggest dividing the children’s dependency between the parents in order to avoid confusion. Even if both children spend the same amount of time with each parent, doing so is legal.

In the majority of cases, if someone is paying maintenance (formerly known as alimony), it will lower their tax bill. Alimony is considered to be an “above-the-line” deduction, meaning that the payor’s income is reduced by the maintenance paid and taxes are not paid on that amount. However, if someone continues to live with an ex-spouse after a divorce, alimony paid during that time cannot be deducted.

Lastly, many people do not realize that child support is tax-neutral, which means it does not affect a person’s taxes at all. However, this can give the person paying the child support motivation to have part of their child support payments reclassified as unallocated family support in order to receive a tax advantage.

Besides changing one’s marital status, divorce can have a far-reaching effect. There are many things someone facing divorce in Illinois must consider, which is why it may be a good decision to consult with an experienced divorce lawyer in Chicago. At Nottage and Ward, our attorneys have exclusively focused on family law for over 20 years. To learn how we can help you, call 312-332-2915.