Filing Your Taxes after Divorce: Everything You Need to Know
- Can I still file jointly after my divorce is finalized?
- Tips for filing as head of household after divorce
- How to fill out your W4 after divorce
- Special considerations for your taxes if you have children
- Alimony taxes
- What about retirement accounts, IRAs, and QDROs?
- Are there any tax breaks if I'm divorced?
If you've filed for or recently finalized your divorce, you may be wondering how to file (and pay if you owe money) your taxes in the future. This question is particularly important for those who have been filing joint returns with their spouse for years or if you have not been head of household.
How you file taxes after a divorce can differ depending on how your divorce agreement (or final decree) is drawn up. If you are in the midst of a divorce or are getting ready to file for one, you should first understand the changes that apply when filing taxes. We understand the financial burdens of divorce can be overwhelming, but knowledge is power.
Can I still file jointly after my divorce is finalized?
The simple answer is "no" – if your divorce was finalized during that tax year. But if it's not yet finalized, probably. Your tax filing status after a divorce depends on where you are in the process. If the divorce isn't fully finalized once the year ends, it's almost always still possible to file jointly.
Your other option in this situation is to mark down that you are married but are filing separately. Keep in mind that both of these filing statuses become unavailable for the tax year in which your divorce is finalized. Let's say that your divorce is finalized in July 2022. When it comes time to file taxes in 2023 for the 2022 tax year, you can't file jointly.
The same is true even if your divorce is finalized on December 31, 2022. But, if your divorce is finalized just before the end of the year, you can choose to file as head of the household, which essentially lowers the tax brackets that apply to you while also providing you with a higher standard deduction. However, the head of the household status is only available if a dependent lived with you for longer than six months in the tax year.
How to file taxes if your divorce was not finalized by December 31 of the tax year
If you are filing taxes while still in the divorce process (you have not received your final divorce decree), you can file jointly with your spouse. You can also file separately while marking down that you are currently married. Most couples get the biggest tax benefit by continuing to file jointly until their divorce is final.
How to file taxes if your divorce was finalized by December 31 of the tax year
As mentioned previously, when you file taxes for the tax year in which your divorce was finalized, it's no longer possible to file jointly or separately with your ex-spouse. Your only options are to file an individual return as a single or head of the household, the latter of which is only available if you are currently supporting a dependent. If you can claim head of household, you will receive a bigger credit.
Tips for filing as head of household after divorce
You can file as head of household as long as you meet three separate requirements. If you meet two of these requirements but fall short on one of them, you cannot use this filing status. The three requirements include:
- Need to have lived with a dependent for six or more months during the tax year.
- Unmarried before or on December 31 of the tax year, which can be the result of being legally separated, divorced or single (such as if you become widowed during that year).
- Paid over 50% of the total costs for maintaining your home during the tax year, which includes such expenses as utilities, food, real estate taxes, repairs, and home insurance.
In the event you qualify to file your taxes as head of household; MoneyCrashers does a great job of breaking down the potential tax benefits.
How to fill out your W4 after divorce
Once your divorce is finalized, you should update your W4 form as soon as possible. This requirement applies to both you and your ex-spouse. A W4 form essentially tells your employer the amount of money they need to withhold from your paychecks. When you file jointly, the W4 withholding amount is split between spouses. As such, you will likely need to recalculate how much should be withheld once your divorce is finalized and you're filing as an individual.
Special considerations for your taxes if you have children
Many assume that if you're paying child support, you can count this as a deduction. And some think that child support payments count as income. Neither is true. Child support is not tax-deductable or taxable in any state or circumstance.
The tax-related factor that does matter is which parent each child lives with for more than half the time during the year. This parent is considered the custodial parent on a tax return. The custodial parent can claim their child as a dependent when filing taxes. This option isn't available to the non-custodial parent. The earned income credit and child care credit can also be claimed by the custodial parent.
When you're filing taxes after divorce, keep in mind that alimony taxes may apply to your situation. The rules changed between 2018 and 2019. As of January 1, 2019, alimony or separate divorce- or separation-related maintenance payments are no longer tax-deductible by the payer. Also, the payee (spouse receiving the alimony) is not required to report alimony payments as income.
If your divorce was finalized before January 1, 2019, you may need to adhere to previous IRS rules – which could mean a deduction for the payer and impact income for the payee.
What about retirement accounts, IRAs, and QDROs?
A qualified domestic relations order (QDRO) is commonly ordered by a judge during a divorce when one spouse has a substantial amount of money in a retirement account. This order details how one spouse's employer-provided retirements plans and IRA accounts are handled once the divorce is finalized.
This court order can also apply to benefits that are paid to a dependent, former spouse, current spouse, or child. Once a QDRO is put into place, retirement accounts are typically split evenly between both spouses. QDROs are usually taxed similarly to other standard plan distributions. One difference, however, is that the 10 percent early withdrawal penalty does not apply to cash-out distributions.
Are there any tax breaks if I'm divorced?
You may be wondering if any tax breaks are available to ease your financial burdens. In general, there aren't any specific tax breaks that can be claimed after a divorce is finalized. However, there are a couple of filing options that may help you save some money on your annual tax return.
As mentioned previously, filing as head of household can reduce the amount you owe for the given year. It's also possible that you will benefit from selling your home as part of the divorce. If neither you nor your ex-spouse wants to continue living in the home, you can avoid being taxed on the initial $250,000 you obtain from the sale as long as the home was owned by you for at least two out of the previous five years.
Seeking a divorce is never easy. If you've been filing jointly for years, having to file a separate return can be stressful because of how different these returns can be. To learn more about how to recover (even thrive) financially after a divorce, we recommend seeking help from a financial advisor. Learn more about how divorce financial planners can help you here.
What's after divorce?
Make sure you've got everything covered with our FREE checklist.