Undergoing divorce does not eliminate the burden of taxes. Planning for tax consequences should be part of pursuing a settlement or decree.
For example, child support payments are not tax deductible. This also means that the parent who receives this support does not have to pay taxes on it.
Alimony paid to or for a spouse is deductible if made under a divorce or separation decree. The taxpayer does not have to itemize deductions to claim spousal support as deduction. However, this taxpayer must place the recipient spouse's Social Security number or taxpayer identification number on the 1040 form.
The spouse receiving alimony must pay additional taxes for the year this support is received. However, there is no tax withholding for alimony. The receiving spouse may have to increase taxes paid throughout the year to avoid penalties by making estimated tax payments or increasing the amount of taxes withheld from wages.
If the final decree or separate maintenance agreement is issued before the end of the tax year, a spouse cannot deduct contributions to their former spouse's traditional individual retirement account. This spouse possibly, however, deduct contributions to their own traditional IRA.
Even if divorce causes a spouse to lose their health insurance coverage, that spouse still must have coverage for each month of the return for themselves and any dependents claimed on tax returns. Health insurance enrollment in a Health Insurance Marketplace can take place during a special enrollment period for coverage lost at the end of a marriage.
Finally, any name changes must be reported to the Social Security Administration. The name placed on any tax forms must be the same as a person's Social Security Administration records. Any inconsistency can complicate processing of tax returns and delay refunds.
In addition to these issues, taxes may impact division of marital property, real estate and other retirement plans for couples in Arizona. An attorney can assist a spouse with seeking a settlement or decree that protects their financial interests.
Source: CBS Boston, "Breaking up is hard to do: Don't forget the taxes!," Dee Lee, Sept. 1, 2017