How Does Divorce Affect Your Taxes?

divorce impacting finances

Divorce can be stressful for everyone, from settling child custody issues to selling the marital home. After dividing up your property assets and finalizing the decree, you don’t want to be left with a large tax bill. If you want to learn more about these potential obligations, see how a divorce could affect your taxes. 

Alimony or Spousal Support Payments

Both spouses must understand how those alimony payments will be treated for tax purposes. At one time, alimony was designated taxable income for the recipient and a deductible for the paying spouse. However, for those divorce decrees finalized after 2019, there are no tax benefits. Alimony payments are not taxable income and offer no deductible for the payor.

Remember that child support payments are not taxable for the recipient or deductible for the paying spouse. Child support is calculated separately from alimony, with the intention to provide for the financial needs of any children involved in the divorce. 

Not all situations are the same. For that reason, you should consult with a divorce attorney to determine whether the decree will affect your future tax obligations. 

Property Division

The division of marital property during a divorce is a massive concern for many couples. In California, assets acquired during a marriage are considered community property and subject to equal division between spouses. The transfer of community property during a divorce is usually not taxable and does not result in a capital gains tax or tax liability for either party.

However, a capital gains tax may apply if a property, such as real estate or investments, is sold or transferred. If one spouse receives an asset as part of the property division and later sells it, they will be responsible for any applicable capital gains tax based on the difference between the sale price and the adjusted basis of the asset.

When dividing property, both parties must accurately determine the adjusted basis of the transferred assets. That adjusted basis is the original purchase price adjusted for improvements, depreciation, or other factors that could affect the asset’s value.

Dependency Exemptions and Child-Related Tax Benefits

During a divorce, parents often have to consider the tax benefits related to their children, such as the Earned Income Tax Credit. In California, the custody arrangement usually determines who can claim the dependency exemption for their children on their taxes. The custodial parent may also be eligible for additional tax benefits, like the Child Tax Credit and other child-related tax deductions. 

Our California Family Law Firm Is Here to Answer Your Questions

Does divorce affect your taxes? Unfortunately, there is no easy answer since many people have unique situations. You will need to seek help from an experienced family law firm that can navigate this often complicated landscape. 

If you need help with a divorce or other family law issue in California, the Roberts & Zatlin Family Law Firm is here for you. Our Temecula office has been providing comprehensive services for more than 35 years. We serve various regions, including Menifee, Hemet, Sun City, Lake Elsinore, Winchester, Wildomar, Riverside, San Bernardino, Orange County, Vista, San Diego, the Inland Valley, and other areas throughout the state. You can book a consultation by calling (951) 381-8147 and receive a free initial review of your situation.

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