You, your ex, and the IRS: 3 considerations for divorce and taxes

The IRS plays a role in your divorce. Here are a few of the more common issues.

Getting divorced is a big life changing event. In addition to transitioning from life with as part of a couple to that of an individual, those completing a divorce must also keep in mind that the split has implications outside of the relationship.

One area that can be of particular concern involves the Internal Revenue Service (IRS).

How is the IRS involved in divorce?

The IRS is generally involved when money is transferred. Since divorce involves the splitting of marital assets, involvement of the IRS is likely.

Three general questions that apply to the role of the IRS in most divorces include:

  • Who is liable for the tax bills?
  • Will my name be a problem?
  • Are there other things in our divorce agreement that could impact our taxes?

The following information delving into these three questions can help you to better navigate your taxes post divorce.

Who is liable for tax obligations after a divorce?

Like many things in the legal world, the answer to this question is "it depends." The Internal Revenue Service (IRS) notes that those who have gone through a divorce are generally "jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce." Essentially, this means both parties are responsible for a tax bill if the obligation developed before the divorce was finalized.

However, tax obligations accumulated after the divorce is finalized are generally the responsibility of the individual.

Will my name be a problem when I file my taxes?

Some choose to change their names after a divorce. If this is the case, the name could pose an issue when filing taxes. If there is a name change, the issue can be mitigated by promptly notifying the Social Security Administration (SSA). The SSA can then move forward with updating their records. Once this is done, the records with the IRS should match the SSA, easing the process.

What else about divorce can impact our taxes?

A variety of considerations should be taken into account when crafting a divorce settlement agreement, including the potential implications come tax time. There are a number of portions within the agreement that will impact your taxes.

One example involves alimony. Those who agree to pay out alimony can generally deduct the amount from their taxes, while those who receive alimony likely need to include the payment in their income calculations.

If children are present, additional considerations apply. Two of the more common involve claiming the children as dependents and the handling of child support payments. It is generally wise to include who will claim the children as dependents within the divorce settlement agreement. As for child support payments, it is important to note that the IRS views these payments much differently than alimony. Child support payments can neither be claimed as a deduction or as income.

These are just a few of the many concerns that can arise when it comes to navigating the implications of a divorce on your taxes. As a result, it is wise to contact an attorney. Your lawyer can discuss these and other potential tax implications with you during the divorce process, reducing the risk of any surprises come tax time.