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.
Contact an experienced divorce attorney in New Mexico
Having a knowledgeable divorce law attorney in New Mexico on your side can help you avoid mistakes that could negatively affect your finances down the line. Contact New Mexico Financial and Family Law today or call us at (505) 503-1637 to schedule an initial consultation.