Divorce and Taxes: Who Gets the Credit?

Going through a divorce is difficult enough without worrying about tax season. But understanding how divorce affects your taxes is important for protecting your financial future. From filing status to dependent exemptions, the way you handle taxes during and after divorce can have a real impact on your wallet.

If you're facing divorce and have questions about tax credits, filing status, or financial matters, don't wait until tax season to get answers. Contact Johnson O'Keefe today at (888) 445-2318 or reach out online to discuss your situation with a compassionate family law attorney who can help protect your rights.

How Does Divorce Change Your Tax Filing Status?

Your marital status on December 31st determines how you file your taxes for that entire year. If your divorce is finalized by the end of the year, you'll file as single or head of household. If you're still legally married on December 31st, you must file as either married filing jointly or married filing separately.

Many divorcing couples wonder which filing status saves them the most money. Here's what you need to know:

Married filing jointly often provides better tax rates and more deductions, but both spouses are responsible for any tax debt
Married filing separately protects you from your spouse's tax issues but typically results in higher taxes and fewer credits
Head of household status is available if you're separated, live apart from your spouse for the last six months of the year, and have a dependent child living with you more than half the year

The filing status you choose during your divorce year can affect your tax refund by hundreds or even thousands of dollars. This is just one reason why timing matters when finalizing your divorce.

Who Claims the Children as Dependents?

One of the biggest tax questions in divorce is who gets to claim the children. The IRS has clear rules: the custodial parent (the parent with whom the child lives for more than half the year) generally has the right to claim the child as a dependent.

However, parents can agree to let the non-custodial parent claim the child. This arrangement must be documented properly using IRS Form 8332. Here are some common ways parents handle dependent exemptions:

Alternating years where each parent claims the child in different tax years
Splitting children if there's more than one child (one parent claims one child, the other parent claims another)
Trading the exemption for increased child support payments

The parent who claims the child as a dependent can also claim the Child Tax Credit, which is currently worth up to $2,000 per child. This credit can make a significant difference in your tax refund.

What About Child Tax Credits and Dependent Care Credits?

Tax credits related to children are often more valuable than simple deductions. Understanding which parent can claim these credits is essential for fair financial planning during divorce.

The Child Tax Credit goes to whoever claims the child as a dependent. But the Child and Dependent Care Credit works differently. This credit helps offset the cost of daycare and after-school care so you can work. Only the custodial parent can claim this credit, even if the non-custodial parent claims the child as a dependent.

If you pay for your child's care so you can work, you may qualify for this credit worth up to $3,000 for one child or $6,000 for two or more children. Keep careful records of what you pay and to whom.

Other tax benefits related to children include:

Education credits for college expenses
Earned Income Tax Credit for lower-income parents
Medical expense deductions if they exceed a certain percentage of your income

Your divorce agreement should clearly state who gets to claim which credits. Without a clear agreement, disputes can arise that delay tax refunds and create additional conflict.

Can You Deduct Alimony Payments?

The tax treatment of alimony changed significantly in recent years. For divorce agreements finalized after December 31, 2018, alimony is no longer tax-deductible for the paying spouse, and the receiving spouse doesn't pay taxes on it.

However, if your divorce was finalized before 2019, the old rules still apply. Under those rules:

The spouse paying alimony can deduct those payments from their taxable income
The spouse receiving alimony must report it as taxable income
Payments must meet specific IRS requirements to qualify as alimony

It's important to understand which rules apply to your situation. If you're modifying an older divorce agreement, the tax treatment of alimony typically doesn't change unless you specifically choose to apply the new rules.

Child support payments are different from alimony and have never been tax-deductible. The paying parent cannot deduct child support, and the receiving parent doesn't pay taxes on it.

How Should You Handle Tax Refunds During Divorce?

If you file a joint tax return while your divorce is pending, you'll need to decide how to split any refund. Many couples split refunds equally, but the division depends on each person's income, withholdings, and financial contributions during the marriage.

Your divorce agreement should address:

How to split the current year's tax refund
Who's responsible for any taxes owed
What happens if the IRS audits a joint return from previous years

If you're worried your spouse might take the entire refund, you can request that the IRS split the refund between two accounts when you file. This is called a "split refund" and requires clear communication with your tax preparer.

Some divorcing couples owe taxes instead of getting refunds. Your divorce agreement should clearly state who pays what portion of any tax debt. Without a clear agreement, both spouses remain legally responsible for the full amount.

What Records Should You Keep?

Good record-keeping protects you during and after divorce. Save documentation of all financial transactions, especially those that might affect your taxes. Keep records for at least three years after filing, though seven years is safer.

Important documents to maintain include:

Pay stubs and W-2 forms
Records of alimony and child support payments made or received
Receipts for child care expenses
Medical bills paid for your children
Real estate documents if you're dividing property
Retirement account statements

These records help you file accurate tax returns and provide evidence if disputes arise. They're also essential if the IRS ever questions your return.

Should You Consult a Tax Professional?

Divorce involves complex financial decisions that affect your taxes for years to come. While your attorney can help negotiate fair terms in your divorce agreement, a tax professional can help you understand the specific tax implications of different arrangements.

Consider working with a CPA or tax attorney if:

You or your spouse own a business
You have significant investments or retirement accounts
You're dividing valuable property or real estate
You have high income or complex financial situations

The money you spend on professional advice now can save you thousands in taxes and help you avoid costly mistakes. Your divorce attorney and tax professional can work together to structure your agreement in the most tax-efficient way possible.

Take Control of Your Financial Future

Divorce affects every aspect of your financial life, including your taxes. Understanding who gets tax credits, how to handle filing status, and what deductions you can claim helps you make informed decisions during this challenging time.

Don't navigate these complex issues alone. The decisions you make now about taxes and finances will affect you for years to come. Getting professional guidance ensures you understand your options and protects your financial interests.

Johnson O'Keefe is here to help you through every aspect of your divorce, including the financial and tax-related questions that arise. Our experienced family law attorneys serve clients throughout Illinois, Florida, and Wyoming with compassionate, knowledgeable representation.

Call (888) 445-2318 or contact us online today to schedule a consultation and get the guidance you need to move forward with confidence.