Deductions and Your Divorce Settlement
The IRS does not allow deductions for legal fees that occur during a divorce, with only limited exceptions. For example, you may be able to deduct tax advice given during the divorce, or the cost of appraisers and accountants if you used any to value a business or home for tax purposes during the divorce.
Spousal Support Deductions
Spousal support or alimony does have tax ramifications, however. Whoever pays spousal support can deduct those payments. In fact, because spousal support is an above-the-line deduction, you can deduct it from your gross income, not your adjusted gross income, which means all taxpayers can deduct them without restriction. The ex-spouse receiving alimony must include it as income on his or her tax return.
Because spousal support is considered income, the legal fees paid specifically to secure or collect spousal support can be included if you itemize deductions. These legal fees are deductible both when first obtaining the spousal support, as well as to change spousal support payments or to collect if it is not being paid. There is a restriction, however, in that you can only deduct legal expenses if they exceed 2 percent of your adjusted gross income.
Filing Status and Dependents
You must change your filing status the same calendar year you were divorced to single or head-of-household. In some occasions, such as if you have physical custody of a child, it might be in your best interest to file as head-of-household. The parent with physical custody, often called the custodial parent, can claim children as dependents so long as they have lived with them for more than six months during the calendar year. Only one parent can claim a child, although in some circumstances you can arrange with your ex-spouse to either split years claiming dependents, or if there is more than one child have a parent each claim one child.
Child support payments are meant to be used exclusively for the children, so they do not count as income to the custodial parent, and the ex making the payments cannot deduct them.
Consult an Attorney
Tax matters are likely the last thing you want to think about when going through a divorce. However, an experienced attorney can help you to understand all the financial consequences of divorce, including tax matters. If you are contemplating a divorce, speak to an attorney in your area.