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Tennessee General Law Blog

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How Can Divorce Affect Taxes?

Divorce can impact many areas of your life and finances, including your taxes. You need advice from an experienced Manchester, TN divorce attorney.

When people are going through a divorce, they are primarily thinking about child custody and support, property division, and spousal support. Many people do not think about how divorce can impact other aspects of their lives, like their taxes. If you are preparing for divorce or separation in Tennessee, you can benefit from the expertise of a Manchester, TN family law attorney. At the Law Offices of Burch, Morrison, & Stewart, our team has over 15 years of experience representing Middle Tennessee area clients in a wide variety of family law matters.

Are You Considered Married or Single When Filing?

Under Internal Revenue Services (IRS) rules, you would still be married if your divorce has not been finalized prior to December 31 of the applicable tax year. This holds true even if you or your spouse filed during the year. If the court issued your final divorce decree before the end of the year, then yes, you would be single again. This means you need to file as single or as head of the household, if applicable.

Who Can File as Head of Household?

To claim a child as a dependent, you must be the custodial parent. The custodial parent is the one with whom your child lives a majority of the time. This would also make you eligible to file as head of household. Without a child or dependent, you will not qualify as head of household or receive the Earned Income Credit. Dependents can help you receive an increase in tax deductions, like educational expenses, medical expenses, Child and Dependent Care Credit, and Child Tax Credit.

The IRS does not necessarily care whether or not you were living together during your separation; the tax code says you are still married unless there is a court order that says you are legally separated or officially divorced. You might wonder why you would still want to file with your spouse if you are in the middle of a divorce. This can be beneficial in some cases, especially if a higher deduction amount applies.

Alimony and Child Support

Tax laws surrounding alimony changed last year, so alimony is no longer tax deductible for the spouse who has been ordered to pay the support. The recipient spouse does not have to claim it as income either. This applies to any divorce decrees issued on January 1, 2019, going forward. Child support payments are not tax deductible, either.

Under the old rules, you could deduct some expenses related to your divorce, but the new tax laws eliminated this rule. For example, you were previously allowed to deduct any fees that were associated with generating income, like paying a lawyer to enforce an order for spousal support. Since alimony is no longer taxed as income, there is no reason to deduct fees.

Tax Liability

Couples with significant asset portfolios, a lot of stocks, who own a business, etc., will need to know how property division will impact them. Any transfers between spouses should happen in a way that does not signal gift tax or taxable gains. This is one reason it is so important to retain an attorney for your Tennessee divorce.

Contact a Tennessee Family Law Attorney

If you need assistance with understanding how a Tennessee divorce can impact your taxes, or any other aspects of a divorce, contact the Law Offices of Burch, Morrison, & Stewart to schedule an initial consultation.

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