Tax changes that happen after a divorce

People in California who are divorcing will find that after the divorce, there are changes in how they must file their taxes. One big change is the switch from filing as married to filing as single or as head of household if there are dependents. The person will also be in a new tax bracket. After an annulment, the couple must also file amended tax returns for the years they filed as married.

Alimony payments must be mentioned in the divorce or separation agreement to be tax deductible. For the recipient, they are taxed as income. Child support payments are considered separate and cannot be taxed or deducted. Only one parent may take the dependent exemption for the couple’s children. While this is usually the custodial parent, the noncustodial parent may take it if both agree and the noncustodial parent files Form 8332 with taxes. However, the other parent can file Form 8332 and revoke the noncustodial parent’s right to the exemption.

Other credits and exemptions that will only go to one person include the mortgage interest deduction, available only to the person who got the house, and the child tax credit. Those with more complicated tax situations may want to work with a tax professional for the first year’s filing after the divorce to avoid any errors.

People should keep these changes in taxes and how they will affect their financial situation in mind as they prepare to negotiate property division. Divorce can mean a drop in a person’s standard of living, and assets like part of a retirement account can help with a person’s financial security. An attorney can assist with negotiations. In a community property state like California, shared marital assets are supposed to be divided equally, although there may still be room for adjustments that suit a couple’s particular situation.