Menu

Life Events

Divorce Court Cannot Trump Federal Tax Law

by
Gordon W. McNamee
on
8/13/2017
Divorce Court Cannot Trump Federal Tax Law

As if going through a divorce proceeding wasn’t already bad enough on its own, it can also have considerable tax ramifications. Couples who are negotiating (or disputing) the ins and outs of alimony, child support, tax liabilities and the like may think that they’ve addressed all of the issues, only to find that what is acceptable in your state court does not necessarily fly with the Internal Revenue Service (IRS). Carefully worded terminology and responsibilities outlined by attorneys and signed off on by state courts has absolutely no impact on the tax agency, which by law is required to adhere to federal statutes.

The parties to a divorce proceeding are the two spouses and the state which grants the divorce – not the IRS. Where things are agreed upon and the appropriate documentation is provided, they may go along with the terms of your divorce. But if two formerly-married individuals are fighting over tax issues, the IRS will not see any contest at all: they will stick with what the law says. This may mean that if your ex-spouse pays (or doesn’t pay) their federal taxes in the way that has been outlined in your divorce decree, the only remedy available to you will be to pursue them in your state court.

Still, anticipating and specifically addressing these issues is helpful. To that end, here are some of the most commonly-seen tax issues that can arise from a divorce:

  • Who Can Deduct the Dependents?

When a couple with kids files for divorce, the issue of custody is always emotionally fraught. It can also raise questions about who gets to write them off as deductions on their federal taxes. The law indicates that the parent who has the greater number of nights of custody per year is automatically entitled to the dependent write off, but many ex-spouses agree to alternate years for write offs, or to allow the parent who provides the greater amount of child support to take it.

Whatever your agreement, the IRS provides Form 8332 to transfer the right to take the exemption to the non-custodial parent. The form needs to be filed for each year that this is the case.

  • Who Claims Custodial Status?

When divorced parents submit their tax returns indicating that they are the custodial parent (and therefore deserving of the dependent write-off), the agency does not investigate or challenge that claim as long as there is no additional claim that contradicts the tax filings. In instances where both ex-spouses file for the write-off, the IRS makes use of specific rules to establish the facts.

  • Who Owes What Taxes

Frequently, part of a divorce settlement or decree will be dedicated to establishing the liability for current or past-due taxes. Though this may address immediate needs and concerns, it does not eradicate the legal liability that the IRS assumes based upon joint returns that have been filed by married taxpayers. Joint tax returns make each member of a married couple liable for the taxes due, with no regard to who earned the income that’s been reported, or what a divorce decree may state. If the ex-spouse that the divorce decree assigns responsibility for payment fails to do so, then the other spouse may be held responsible by the agency. When this happens, the only remedy that is available is through the courts in the state where the divorce decree was finalized.

  • Spousal Support

Also known as alimony, many divorce agreements will contain language that reduces the amount of support paid to an ex-spouse upon the couple’s children reaching a specific age. Though this may be provided in recognition of the care that the custodial parent is providing, the IRS would view this type of arrangement as being part of child support, and they do not allow spousal support to be classified as such in any way. In these cases, the amount that the spousal support is reduced by will be categorized as child support, and therefore not deductible by the paying ex-spouse in the way that alimony is.

To ensure that your divorce agreements don’t lead to additional complications down the road, make sure that your attorneys are well-versed in the tax laws surrounding ex-spouses. If you have any questions, don’t hesitate to contact a tax professional.

Gordon W. McNamee, CPA writes for TaxBuzz, a tax news and advice website. Reach him and his team at [email protected].

share this post
Search for matches...
Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

GORDON W. MCNAMEE, CPA
★ ★ ★ ★ ★
22 reviews

California

Firm Profile

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts