New York Info

New York Divorce Start Your Divorce Find Professionals New York Articles Divorce Facts Divorce Grounds Residency Divorce Laws Mediation/Counseling Divorce Process Legal Separation Annulments Property Division Alimony Child Custody Child Support Divorce Forms Process Service Grandparent Rights Forum New York Products Divorce by County

New York Articles

Agreements Custody & Visitation Child Support Counseling Divorce/General Domestic Abuse Financial Planning Foreign Divorce Mediation Parenting Property Division Spousal Support SEE ALL

Info Categories

Contemplating Divorce Children & Divorce Divorce, Dollars & Debt Divorce Laws Divorce Process Divorce Negotiation SEE ALL

More Information

Articles Checklists Research Center Cases of Interest Dictionary Encyclopedia Encyclopedia (pop-up) Blogs

For Professionals

Advertise With Us Free Network Page Join Our Network Submit Articles Case Management Sign In

Network Sites

New York Divorce Support New York Divorce Online

The Tax Aspects of Divorce or Separation

It is strongly recommended that before any settlement agreement is finalized, that the parties consult with a tax attorney or tax accountant to review the tax consequences of the agreement.

This article is not meant to be a complete analysis of the Internal Revenue Code, but a general outline of some of the tax ramifications of divorce and separation.

One of the most important aspects of negotiating a settlement in conjunction with a divorce is taxes and how they affect the parties. Parties can chart their own course concerning taxes so long as it does not contravene the tax laws.

Child Support

Child support is a payment by the non-custodial parent to the custodial parent. Child support obligations are governed by state law. The payments made for child support are non-deductible by the payor and are not includible as income by the payee.

Dependency Exemptions

Effective January 1, 1985 the custodial parent has the right to claim the dependency exemption for the child/ren, unless he/she waives that right. The custodial parent may waive that right by executing IRS Form 8332. The form must be attached to the non-custodial parent's tax return. TAX TRAP Failure to provide in an agreement, for the allocation of the dependency exemption/s, automatically gives the custodial parent the right to claim the exemption/s.

Alimony (Maintenance)

Alimony is a payment by one spouse to the other pursuant to a divorce decree, separation decree, or a written agreement including a separation agreement. Alimony is deductible by the payor and includible as income to the payee, provided it meets certain requirements set forth in the Internal Revenue Code(see IRS Publication 523). Parties may elect to treat alimony payments as non-deductible by the payor and not taxable as income to the payee. When alimony payments exceed $15,000.00 per year there are strict requirements to be met in order to insure the deductibility of those alimony payments.

Payments to a third party on behalf of a spouse may be alimony (tax deductible). For example, a life insurance policy owned by the husband and designating the wife as beneficiary can be assigned to the wife who then becomes the owner of the policy. Payment of the premiums by the husband constitute alimony payments. The wife must be the owner of the policy at the time the premium is paid.

Transfer of Property

There is no gain or loss recognized when one spouse transfers property to the other spouse. The same rule applies to transfers to former spouses if the transfer is incident to a divorce (IRC 1041).

Sale of Marital Residence

When a capital asset, such as the marital residence, is sold, there may be a capital gain. A capital gain is generally determined by subtracting the cost basis (plus capital improvements) from the net sales price. For sales occurring after May 6, 1997 individuals are permitted to exclude from income up to $250,000.00 of the gain from the sale of their principal residence. Married couples, filing a joint tax return, are permitted to exclude up to $500,000.00. In order to qualify, the taxpayer must have owned and used the residence as a principal residence for at least two years prior to the sale. There is no longer an age requirement and the exclusion can be used as many times as the taxpayer qualifies. The "rollover" provision of the Internal Revenue Code (IRC 1034) has been repealed. A spouse is considered to have used the marital residence as a principal residence during any period when: the spouse owned the property; and the other spouse is permitted to use the marital residence pursuant to a divorce agreement or a separation agreement. This provision eliminates a major tax trap for divorced or separated persons who reside outside of their principal residence after a divorce or separation. TAX TRAP If a spouse resides outside of the home, voluntarily, i.e. not pursuant to a divorce agreement or a separation agreement for more than two years and the home is then sold, the excluded spouse is not eligible for the exclusion since it was not his/her principal residence for two years prior to the sale. The maximum tax rate on the net capital gains has been reduced from 28% to 20%.

Legal Fees

Legal fees for obtaining a divorce are not deductible. A person may be able to deduct legal fees for tax advice incident to a divorce or separation. TAX TIP Ask your attorney to allocate his/her bill indicating what part of the fee was for tax advice. In addition, legal fees incurred for obtaining alimony that is includible in income may be deductible.

Filing Status

Married persons may file joint tax returns provided they are married on the last day of a calendar year. If a married couple file separate tax returns, they can change to a joint return within three years from the due date. Parties that are separated by an agreement are permitted to file joint tax returns. If the parties are divorced on the last day of the calendar year or are separated by a judicial decree of separation they cannot file joint tax returns. TAX TIP If the parties will benefit by the filing of a joint tax return and it appears that a divorce will be entered before the end of the calendar year, it is possible to delay the filing of the divorce until the beginning of the following year.

The Internal Revenue Service is a good source for information for the tax aspects of a divorce or separation. You can call the Internal Revenue Service at 800/829-3676 and request Publication 504 entitled Tax Information for Divorced or Separated Individuals and Publication 523 entitled Tax Information on Selling Your Home. These publications are free.

Was this helpful? Like our site & let us know.

Related Articles

Start New York Divorce Start Your New York Online Divorce Today
Easy, Fast and Affordable with a 100% Guarantee.
New York Divorce Find New York Divorce Professionals in Your Area:
Join the Network
New York Divorce Products, Services and Solutions New York Divorce Products, Services and Solutions
New York Divorce Resources to Help You Through the Process.
Online Parenting Class New York Mandatory Online Parenting Class
Easy and convenient - complete at your own pace online.
Divorce and Custody Books Discount Divorce Bookstore
Over 100 Titles of the Best Books on Divorce & Custody.
Divorce Downloads Divorce Download Center
Instantly Download, Books, Manuals, & Forms.
Divorce Worksheet Free New York Divorce Worksheet & Separation Agreement
Your Guide to Get Organized and Put Everything in Writing.
In order to qualify for a New York uncontested, "no-fault" divorce, both parties must agree to the divorce, division of all marital assets, debts, property, custody of the minor children, support for the minor children and spousal maintenance. In an uncontested divorce, the defendant can be served but if he or she does not answer the complaint in divorce then the plaintiff can seek a default judgment in divorce. The defendant can also waive his or her right to answer the complaint.
Divorce Lawyers & Mediators

Find Professionals

Easily Connect With a Lawyer or Mediator
Have Divorce Professionals from Your Area Contact You!
Enter Your Zip Code:


Start Your Divorce File for a New York Divorce


Settle Your Divorce Negotiate Your New York Divorce


Support Forum New York Support Forum

Children In Between - Online Parenting Class

FEATURED TOOL - 3StepAgreementTM (an affordable solution for preparing your own Separation Agreement)

Guarantee Official PayPal Seal Facebook Twitter Versign Secure Site
Limited Offer Women's Rights Manual For Divorce
Cover Price: $55.95
Your Price: $29.95
You Save: $26.00

"The Absolute Best Investment in Your Divorce"

Men's Rights Manual For Divorce
Cover Price: $55.95
Your Price: $29.95
You Save: $26.00

"Uncover Your Options and Unleash Solutions"