Divorce is “taxing” in more ways than one
Daniel Gold • February 10, 2025
Divorce brings significant changes to your financial situation, and understanding the tax implications is crucial to avoid unexpected liabilities and maximize your financial health. From filing status to the division of assets, knowing how divorce impacts your taxes can help you plan effectively for your post-divorce life.
Changes in Filing Status
Your marital status as of December 31 determines your tax filing status for that year. After a divorce:
- If you are legally divorced by the end of the year, you must file as single or, if you have dependents, as head of household .
- If your divorce is not finalized by December 31, you may still file as married filing jointly or married filing separately for that tax year.
The head of household filing status often provides better tax benefits, including a higher standard deduction and lower tax rates, if you meet the eligibility criteria.
Alimony and Taxation
In case you were not aware, u
nder the Tax Cuts and Jobs Act
(TCJA)
of 2017, the tax treatment of alimony
(spousal
support) changed:
- For divorces finalized before January 1, 2019 : Alimony payments are tax-deductible for the payer and considered taxable income for the recipient.
- For divorces finalized on or after January 1, 2019 : Alimony payments are no longer tax-deductible for the payer, nor are they considered taxable income for the recipient.
If you are modifying an existing alimony agreement (one intially made prior to 2019), the tax treatment depends on the terms of the modification and whether both parties
agree to apply the TCJA rules.
Child Support and Tax Implications
Child support payments are not tax-deductible for the payer and are not considered taxable income for the recipient.
There are other tax-related issues related to child support, however, and you should talk to CPA or seasoned family law counsel for more information. These are detailed elsewhere.
Division of Property and Tax Consequences
In California, community property laws dictate that marital assets and debts are divided equally. While the division itself is not taxable, certain transactions may trigger tax implications:
Retirement Accounts
Transferring funds from retirement accounts, such as 401(k)s or IRAs, typically requires a Qualified Domestic Relations Order
(QDRO).
If handled correctly, these transfers are tax-free. However, early withdrawals without a QDRO may result in penalties and taxes.
Capital Gains Taxes
If you sell jointly-owned property, such as a home or investments, you may owe capital gains taxes. Understanding the tax basis and the gain on the sale is crucial to avoid surprises.
Primary Residence Exclusion
You may exclude up to $250,000 of capital gains from the sale of your primary residence
($500,000
if filing jointly) if you meet ownership and use requirements. Post-divorce, only the spouse living in the home can claim this exclusion.
Tax Deductions for Dependents
As stated above, child support can raise tax-related issues. California’s guideline child support formula generally considers parents net income
(after
taxes)in determining what the base child support amount will be.
For example, c
laiming dependents can significantly affect your tax return. Typically:
- Only one parent can claim the child as a dependent per tax year.
- The parent with primary physical custody usually claims the child, unless both parents agree otherwise in the divorce settlement.
- The non-custodial parent may claim the child if the custodial parent signs IRS Form 8332, releasing their claim.
Claiming dependents may also impact eligibility for tax credits like the
Child Tax Credit
or the
Earned Income Tax Credit
(EITC)
.
Of course all of these considerations may impact the child support calculation under the California guideline child support formula. Be careful!!
Other Considerations
Health Insurance
If you were covered under your ex-spouse’s employer-sponsored health plan, you might need to seek coverage through COBRA, your employer, or the healthcare marketplace. COBRA coverage allows you to remain on your ex-spouse's plan temporarily but may be costly.
Estate Planning and Taxes
Post-divorce, update your estate plan, including wills, trusts, and beneficiary designations, to reflect your new circumstances. Failing to do so could result in unintended tax liabilities or asset distribution.
Tax Withholding and Payments
Update your IRS Form W-4 with your employer to adjust your tax withholding. Changes in filing status, income, or dependents may affect how much tax is withheld from your paycheck.
Working with Professionals
Navigating the tax implications of divorce can be overwhelming. Consider working with:
- Seasoned Family Law Counsel : To ensure your divorce settlement aligns with your financial and tax goals.
- A Tax Advisor or CPA : To provide detailed guidance on your post-divorce tax strategy and help with filing.
- A Financial Planner : To create a long-term plan for managing your finances and minimizing tax liabilities.
Conclusion
Divorce impacts every aspect of your financial life, including taxes. Understanding these tax considerations and working with professionals can help you avoid costly mistakes and secure your financial future. For personalized advice and assistance with post-divorce tax planning, contact me for expert guidance.
Call: 949-756-0684
Email:
dgold@tldlaw.com
Disclaimer
This information outlines a few of the concepts that surround tax considerations post-divorce in the State of California. It is not intended to be, nor should it be construed as legal advice for any particular situation. Please seek advice from TLD Law or your personal attorney in your state or jurisdiction.
TLD Law Family Law Partner Daniel R. Gold was recently featured on the Divorce Mortgage Strategies Podcast , powered by the Divorce Lending Association . In the episode, titled “ The Divorce Quarterback: Leading the Team That Guides Clients Through Divorce ,” Dan joins host Amy Valdivia, CDLP®, to discuss the importance of coordination and strategy in complex divorce matters. The conversation explores how successful outcomes often require collaboration among family law attorneys, mortgage professionals, and financial experts—particularly in cases involving substantial assets, real property, retirement accounts, and long-term support considerations. Dan shares insight from decades of experience guiding clients through high-net-worth and gray divorces. He explains why approaching divorce as a team effort—where the attorney serves as a strategic leader coordinating financial, lending, and legal professionals—can help clients make informed, sustainable decisions during one of life’s most significant transitions. Watch the full interview on YouTube: https://www.youtube.com/watch?v=Mx7ruqT_IiU About Daniel R. Gold Daniel R. Gold is a partner at TLD Law and a California State Bar–certified Family Law Specialist. His practice focuses on complex divorce and family law matters, including high-net-worth divorces, division of business interests and real property, retirement asset division, and long-term support issues. Known for his strategic and detail-oriented approach, Dan works closely with clients to provide clarity and steady guidance through financially and emotionally complex situations. Learn more about Daniel R. Gold: https://tldlaw.com/our-people/daniel-gold/ About the Divorce Mortgage Strategies Podcast and the Divorce Lending Association The Divorce Mortgage Strategies Podcast is produced by the Divorce Lending Association and is designed for family law professionals, financial specialists, and individuals navigating divorce. The podcast focuses on promoting divorce literacy, financial clarity, and cross-professional collaboration to support better outcomes in divorce cases. Learn more about the podcast: https://www.divorcelendingassociation.com/reports/divorce-literacy-podcast.cfm Visit the Divorce Lending Association: https://www.divorcelendingassociation.com/
Daniel R. Gold, Certified Family Law Specialist, is proud to announce the release of his debut book, The Divorce Quarterback: A Lawyer’s Roadmap Through the California Family Law Jungle .
Accurate and complete disclosure helps protect your rights and facilitates equitable resolutions for property division, spousal support, and child support.
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