Divorce is never easy. It brings emotional challenges, financial stress, and major life changes. On top of that, divorce often complicates taxes in ways that many people don’t expect. From figuring out your filing status to deciding who can claim your children on their tax return, the process can quickly become overwhelming.
If you are going through a divorce or adjusting to life afterward, it is important to understand how these changes affect your taxes. A skilled Texas tax attorney can guide you through the process, protect your financial future, and help you avoid costly mistakes.
How Divorce Affects Your Filing Status
Your filing status determines your tax rate and the deductions you qualify for. In Texas, as in the rest of the United States, your marital status on December 31 of the tax year decides how you must file.
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Single – If your divorce is final before December 31, you must file as single.
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Head of Household – You may qualify if you paid more than half the cost of maintaining a home for yourself and a dependent child for more than half the year.
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Married Filing Separately – This may apply if your divorce is not yet final, but it often results in a higher tax bill.
Getting your filing status wrong can trigger penalties or an IRS audit. A tax attorney can make sure you choose the right option for your situation.
Dependency Exemptions and Child-Related Tax Credits
Divorcing couples often disagree about who gets to claim the children on their tax returns. Only one parent can claim:
Typically, the custodial parent has the right to claim these benefits. However, parents can sign IRS Form 8332 to allow the noncustodial parent to take certain credits. Getting this wrong may result in rejected returns or delays.
A helpful way to figure out if you qualify to claim your child as a dependent is by using the IRS Interactive Tax Assistant tool. You can also review IRS Publication 501 and IRS Publication 504 for more information and instructions.
Alimony and Child Support
Under current tax law, child support is not deductible for the payer and not taxable income for the recipient. For alimony, the rules depend on when your divorce was finalized:
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Divorces finalized after 2018 – Alimony is not deductible by the payer and not taxable to the recipient.
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Divorces finalized before 2019 – Alimony may be deductible by the payer and taxable to the recipient, depending on the terms of the divorce agreement.
For official IRS guidance on how to determine whether a payment qualifies as alimony—and whether it is deductible or taxable—see the IRS page Topic No. 452: Alimony and Separate Maintenance.
Division of Property and Retirement Accounts
Dividing property and retirement savings can trigger unexpected tax consequences. For example:
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Retirement accounts – Splitting 401(k)s or pensions usually requires a Qualified Domestic Relations Order (QDRO). Without this, withdrawals may be taxed and penalized.
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Investment accounts – Transferring assets can create capital gains issues later.
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Real estate – If one spouse keeps the home, future tax consequences may be significant when it is sold.
These issues are often overlooked during divorce negotiations but can impact your long-term financial stability.
Capital Gains and the Family Home
Selling the family home is one of the biggest financial decisions after divorce. Normally, couples filing jointly may exclude up to $500,000 of gain on the sale of a primary residence. After divorce, that exclusion drops to $250,000 per person.
Timing the sale correctly and planning ahead can help minimize your tax burden. A tax attorney can advise whether it makes sense to sell immediately, transfer ownership, or delay the sale until after the divorce.
Why You Should Work With a Texas Tax Attorney
Divorce is stressful enough without worrying about the IRS. A tax attorney like Steve Powell can:
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Prevent costly tax mistakes that often occur during divorce.
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Ensure compliance with IRS rules and Texas-specific requirements.
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Negotiate and advocate on your behalf if disputes arise.
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Develop a long-term tax strategy to protect your financial health.
With the right guidance, you can move forward with confidence knowing your tax situation is under control.
Protect Your Finances After Divorce
Divorce affects both your personal and financial life, and taxes often add another layer of stress. From filing status to property division, every decision can carry tax consequences.
At Powell Tax Law tax attorney Steve Powell has the experience to help Texans navigate these challenges with confidence. Contact us today to schedule a consultation and protect your financial future.
