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What are the tax implications when getting divorced?

Illinois divorce attorney

The tax implications of filing for divorce may not be the first thing on your mind. They do exist, however. The nature of your divorce agreement can have an impact on your tax refund. What's worse, your divorce could lead to you having to pay more money in state and federal taxes.

According to SmartAsset, here are some ways you can prepare:

Determine your filing status

You must first determine filing status based on when your divorce was finalized. For example, you can't file a joint tax return if your divorce was completed on or before December 31.

If you were in the process of getting divorced, but it wasn't finalized until after the new year, you may still be able to file a joint tax return. You can choose to file a separate return if you don't want to file a joint return, however.

You may also have the option to file as head of household if you're unable to file a joint return. This option would increase your standard deduction. It will only apply if you have custody of a child, however.

You and your spouse will each fill out a W-4 if you are employed. Joint filers must split their W-4 withholding between the two spouses. Your allowances must be recalculated once you and your spouse finalize your divorce. This also applies if you choose to file separately.

Consider alimony and child support

You may have a legal obligation to provide alimony (financial support) to your spouse after your divorce. You can deduct your alimony payments from your gross income when it comes time to file your taxes. If you are receiving alimony, it can qualify as income, increasing the amount of money you will owe. You must report alimony on Form 1040.

If your spouse received custody of your children, you would likely have to pay child support. Unlike alimony, child support payments can't be deducted from your gross income. If you receive child support, you don't have to report it as income.

Find out if you qualify to claim children as dependents

Claiming your children as dependents can significantly increase the amount of money you receive in your tax refund. You must be a custodial parent in order to claim your children, however. The custodial parent would live with his or her children more nights during the tax year than the noncustodial parent.

The noncustodial parent may be able to claim a child as a dependent only if the custodial parent signs the Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent (Form 8332). The noncustodial parent will need to attach this form to his or her tax return. If you are a custodial parent who signs Form 8332, you can no longer claim your children as dependents, however.

There are two advantages to being the custodial parent:

  • You may be eligible to claim the earned income tax credit
  • You may be able to file as head of household

Why consult with a lawyer?

A divorce can be an emotionally draining and complex process. Dealing with tax implications can make matters even worse. It's critical to always consult with a divorce lawyer before signing any agreements.

The attorneys at Courtney Clark Law, P.C. in Belleville, Illinois have nearly 40 years of experience helping divorcees sort out tax implications and other legal issues. Contact us online today to find out how we can help you.

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