A Guide to Filing Taxes after a Divorce in California

• Steps to help you prepare to file
• How to determine your tax filing status after divorce
• Who is the custodial parent?
• Child support and alimony decisions
• Division of assets: How are they taxed?
• Research your tax credits
• Can you deduct legal fees and settlements?
• Ways to file your taxes in California
• References

Every April, you file federal and California taxes. After a divorce, this routine step comes with a few differences and important decisions. In terms of your taxes, know that the first year after your split is typically the most confusing, and it might take some extra paperwork. 

In time, you’ll get the hang of your new situation. When April comes around again, you’ll handle your taxes with ease. Keep reading to learn how to properly file your taxes after a divorce in California.

Steps to help you prepare to file 

Getting ready is a critical part of filing your taxes. Take this step long before you sit down to fill out paperwork. That way, when you open the forms and start to fill out empty boxes, you’ll have just what you need at your fingertips. 

Here are the pieces you’ll need when you get started:

Relevant identification information 

The Internal Revenue Service (IRS) requires the right Social Security number (SSN) of every person you’re putting on your tax return. Making a tiny mistake could cause processing delays, so double-check everything you write down. 

If you’re claiming children on your tax returns, you must have their SSNs available, too. If you’re not claiming them as dependents, you can skip this step. 

Financial data 

Gather your banking information, including routing numbers. Accepting a refund via direct deposit is often the fastest way to access your money, and it can prevent theft and lost checks. 

If you’ve split banking accounts with your spouse in the divorce, make sure you place your individual tax return refund in your sole account. Putting money in a shared account could delay your refund, and it could be hard to get the funds back once you realize you’ve made a mistake. 

Proof of income

After your divorce has been finalized, file a new W-4 form with your employer, and make sure you’re withholding the right amount. You should get a W-2 that details how much you made and how much the employer deducted on your behalf. 

You may need other forms to complete your taxes, including the following:

• Form 1099 to collect income from pension dividends, retirement plans, or unemployment compensation
• Forms 1099K, 1099-MISC, or W-2 to collect revenue from a side hustle (like driving for Uber or delivering food) 
• Form 1099-INT to collect interest received from a savings account or other investment 

Deduction and credit information 

The IRS mentions two main ways to lower your tax burden. You can claim deductions to lower your income, or you can access credits to reduce the taxes you owe. 

Common deductions after a divorce include charitable contributions. For example, if you donated all of the furniture from your marital home to a local nonprofit, that organization should give you a receipt, including a dollar amount of your gift. 

You may also have deductions due to contributions to a health savings account (HSA) or individual retirement account (IRA). If your employer offers a 401k, you may see the amount of your yearly contribution on your W-2. 

Your credits after divorce could include the Child Tax Credit, Earned Income Tax Credit, and the Premium Tax Credit. We’ll go into these programs in just a moment. 

Divorce details 

Many people discuss the tax implications of their split in their final divorce documents. For example, you might outline who can claim the children as dependents and whether you’ll sell your home and split the profits or simply transfer ownership.

Keep all relevant divorce documents nearby when you begin filing your taxes. That paperwork can help you answer tricky questions you may not know the answers to offhand. 

How to determine your tax filing status after divorce 

California and the IRS use different approaches for taxing married people vs. single people. One of the first choices you must make on your taxes involves your status. 

From a tax perspective, you’re single (or the Head of Household, if you have primary custody of minor children) if your divorce was completed by December 31. It doesn’t matter when you started the divorce proceedings or when you ended them. Your status on the final day of the year is the piece of information in question.

Who is the custodial parent?

Parents can claim special tax credits, but only if they house the children more nights than the other parent or the two made special arrangements during their divorce. 

If the children live with you more nights than they do your spouse, you can claim Head of Household status and credits. You can also claim your children as dependents. That could help to lower your overall tax burden. 

If you share custody of your children evenly, you must decide which party is Head of Household for that tax year. That person will claim the children as dependents. 

Some people alternate this tax benefit each year. Your plans should be spelled out clearly in your divorce documents. 

Child support and alimony decisions

California and the federal government agree that child support has no impact on your taxes. You can’t deduct the amount as an expense, and you’re not required to claim it as income. Parents are legally obligated to support their children whether they’re married to someone else or not.

Spousal support, or alimony, is very different. The IRS considers spousal support to be neutral, just like child support. You’re not required to discuss these payments on your federal taxes. 

You are, however, required to discuss spousal support on your California state taxes. The person who pays them can deduct them as expenses. The person who gets them must claim the amount as income. 

Division of assets: How are they taxed?

As part of your divorce, you and your spouse outlined who would take ownership of core aspects of your estate. Sometimes, those decisions come with tax consequences. 

If you transferred ownership of your home during a divorce, that’s typically not taxable. The IRS says a simple transfer comes with no recognized gain or loss, so you’re not required to discuss it in your tax forms. 

A home sale is different. Both California and the IRS assess taxes on home sales that result in gains of more than $250,000 and come from someone who hasn’t owned and occupied the home for at least two years. In other words, if you flip a house after it’s yours in a divorce, that could come with tax consequences. 

Splitting a retirement account could come with a penalty, too. If you rolled the amount into an IRA and met other core IRS conditions, that money isn’t considered taxable income. But if you placed the money in a savings account and spent it, you could face fees. 

Research your tax credits

Your changing family and financial landscape after divorce could come with some tax credits. These programs can help lower your tax burden, allowing you to keep more of your money:

• The Child Tax Credit is designed for parents raising children younger than 17 who rely on you for more than half of their financial support, live with you, and are claimed as your dependent. 
• The Earned Income Tax Credit is made to give low-income families a boost. The more children you can claim, the easier it is to qualify for this program. 
• If you lost health insurance coverage in divorce (as many people do), you might be forced to sign up for coverage through the Health Insurance Marketplace. If you do, you may use the Premium Tax Credit to help cover your costs. 

Can you deduct legal fees and settlements?

If you hired a lawyer to process your divorce, you can’t claim those fees on your federal taxes as a legitimate expense. The IRS only allows you to claim legal expenses that produced income taxed at the federal level. 

If you hired a lawyer to help with something else, like an employment issue or a whistleblower case, you could deduct those fees. Since they’re not a routine part of divorce, few couples get to claim them. 

Ways to file your taxes in California 

Once you’ve researched all of your options and gathered all documents, it’s time to file your federal and state taxes. Your federal versions should come first, as the numbers you use here are required in your California forms. 

You can use a free online tool like IRS Free File to file your federal taxes for free. If you’re looking for more help, however, companies like TurboTax and H&R Block have online tools that make filing easier. 

You can fill out your California forms online with Free File. If you get stuck, trained volunteers can assist you for free. If you’d rather use paper, fill out documents (which you can usually get at places like the library), and file them at a tax drop-off location in California. 

References