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Tax Issues for Divorced or Separated Individuals

The IRS, Publication 504, outlines a host of tax filing requirements for people who are married or separated when filing their annual tax returns.

You are considered divorced for the entire year if you are divorced on any day in a given tax year. This is true even if you got divorced on December 31.  As such, you cannot file a joint tax return.

Children as Exemptions

If you have children and are the custodial parent, you have the right to claim the children as exemptions. If you waive that right, or allocate the exemption to the noncustodial parent, you must file Form 8332. This form is required to release the custodial parent’s right to claim the child as an exemption. The noncustodial parent must attach a copy of Form 8332 to his or her return.  This will allow for the proper claim of the exemption.

The custodial parent can, however, revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332. To do so, the custodial parent must provide, or make reasonable efforts to provide, the noncustodial parent with written notice of the revocation in the year prior to the year of the revocation. As such, if you are seeking to revoke the exemption for a tax year, the revocation notice must have been sent in the year prior. The custodial parent must attach a copy of the revocation to his or her tax return for each tax year he or she claims the child as a dependent. With the passage of the new tax act, certain child-related exemptions are being phased out and as such it is important to consult with a tax professional relative to same.

Alimony and Equitable Distribution

Alimony is non-taxable to the recipient.  It is also not tax deductible to the payer. Likewise, child support is tax free.

The division of assets by way of equitable distribution pursuant to a divorce agreement is not a taxable event. Liquidating or cashing in assets is a taxable event.  However, the mere transfer or distribution of assets to facilitate the provisions of a divorce agreement is not taxable.

There are a host of tax issues that result incident to a divorce. It is imperative to consult with a tax expert on these important issues.

Please contact me at jlawrence@lawlawfirm.com if you have questions about this post or any other family law matter.

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