“Tax Consequences of Divorce Explained”

1. Alimony or support payments after 2018 are not tax deductible for the paying spouse, and not included in the recipient’s gross income.
2. Child support payments are not tax deductible for the paying spouse and not taxable to the recipient.
3. A married couple selling their home in connection with a divorce or legal separation can avoid tax on up to $500,000 of gain, as long as they meet ownership and use requirements.
4. Pension benefits can be part of a divorce property settlement and may be handled through a qualified domestic relations order (QDRO) to share benefits and manage taxes.
5. Special language in the divorce decree or separation agreement may be needed to protect the tax exclusion for the spouse who moves out of the home. – Interests in S corporations may result in “suspended” losses in a divorce, which may be forfeited when the interests change hands.
– Transferring a partnership interest in a divorce can result in complex issues involving partners’ shares of partnership debt, capital accounts, and built-in gains on contributed property.
– Decisions on how to file tax returns, adjust income tax withholding, and notify the IRS of any address or name changes should be considered during a divorce.
– There are also estate planning considerations to take into account during a divorce.

Five Tax Implications of Divorce