Important tax considerations for both divorced and divorcing couples – II

Next Monday is the deadline for filing 2010 taxes. While the Internal Revenue Service (IRS) has made great strides in introducing reforms/procedures designed to make computing taxes easier, it can still prove to be a rather complex process. For example, while the laws governing divorcing taxpayers have remained relatively stagnant, it can still prove difficult to determine what taxes/how much must be paid and by whom.

Today’s post, the second in a series, will briefly examine some important tax considerations for both divorced and divorcing couples.

(Please see “Important tax considerations for both divorced and divorcing couples” for more information.)

Claiming your children as dependents may not be as simple as you thought

The ability to claim your children as dependents on your taxes is undoubtedly a huge benefit. However, this seemingly simple exercise can instantly become more complicated in the event of a divorce. Why? In order to claim your children as dependents, you must be designated their custodian by a court of law.

While this was a relatively simple determination for many years – custody of the children and therefore the ability to claim children as dependents traditionally went to the mother – times have changed.

Unfortunately, the current IRS regulations/current tax code offer little guidance on this matter.

In general, if a court has not expressly designated one parent as the custodian of the children, the custodial parent is considered to be the one who has physical custody of the children for the majority of the year. Accordingly, this parent can claim the children as dependents.

While this seems simple enough, what happens if the parents split time with the children evenly (i.e., joint custody)?

Here, many parents who have only one child may decide to split the tax benefits, meaning they alternate the ability to claim their child as a dependent from year to year. (Only one parent at a time can legally claim a child as a dependent.)

As for parents with more than one child, they may simply decide to split the ability to claim children as dependents evenly.

Considering the limitations on alimony

While the person responsible for paying alimony/spousal support to a former spouse may deduct it from their taxes (without itemization), it is important to know the limitations of this deduction.

Specifically, in order to qualify for the deduction, the alimony payments must be made according to the terms of a written divorce/separation agreement. This means that if you are caught in a lengthy divorce battle, you may not be able to claim the deduction.

In addition, it is important to note that post-divorce alimony payments made to a former spouse while sharing a residence may not be deducted. This is an important consideration in today’s tough economic times.

Stay tuned for more from our Ft. Worth family law blog …

To learn more about dissolution of marriage or life after divorce, contact an experienced legal or financial professional.

This post is for informational purposes only and is not to be construed as legal or financial advice.

Related Resources:

Divorce and taxes: Five things you need to know (Time)