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Tax Considerations in New Mexico Divorce
There are so many different issues and variables at play during a divorce that taxes are probably the last thing on your mind. However, understanding how a divorce could affect your taxes, especially when children are involved, could save you from unpleasant surprises in the long run.
What can affect my taxes in a divorce?
There are a variety of factors that can have an effect on your taxes after a divorce. Some of the most common issues include:
- Your filing status. If you have obtained a final decree of divorce by December 31 of the tax year, then you can file as Single or Head of Household (if you have a dependent).
- Claiming dependents. Most often the primary custody parent (or custodial parent) is legally allowed to claim the child as a dependent. Review your divorce agreement and parenting plan. These documents should address who gets to claim the child as a dependent on their taxes.
- Health insurance. Whether you and your spouse share health insurance and how that changes after the divorce could influence how you file your taxes.
- Alimony is considered income to the spouse who receives support. It is a tax deduction for the paying spouse.
- Real estate. A divorce often means selling or moving out of your home. A change in property ownership can have significant effects on your taxes.
- Legal fees. Most legal fees paid during your divorce are not tax-deductible. However, certain fees, such as the fee you paid for consultation about the tax consequences of divorce, or to obtain alimony, can be deducted. Talk to a specialist to determine what, if any, legal fees you can deduct.
- Dividing retirement plans.Retirement plans are often divided in divorce, and there are differing rules and exceptions when retirement assets are divided incident to a divorce than if they were to be divided otherwise.
One of the most difficult aspects of divorce can be the financial uncertainty that comes with a sudden change in relationship status. While most people consider child support and potential alimony fees when they go through a divorce, understanding how divorce can affect your taxes is also important.
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