Key decisions to address
These come up in nearly every divorce:
- Filing status for the year of divorce (single or HoH?)
- Dependency allocation for children
- Child Tax Credit assignment (Form 8332)
- QDRO-based retirement account division
- Division of tax refunds, carryovers, and basis
- Primary residence sale coordination
Filing status in the divorce year
If the decree is final by December 31, you file single for the whole year, or head of household if you paid more than half the cost of a home that housed a qualifying child for more than half the year. Head of household brings wider brackets and a larger standard deduction, and after a divorce with kids it's frequently available to one parent and overlooked. Still legally married at year-end means MFJ or MFS one more time.
Alimony changed in 2019
Divorce or separation agreements executed after 12/31/2018: alimony is NOT deductible by the payer and NOT taxable to the recipient. Pre-2019 agreements kept the old rules unless modified. Child support was never deductible or taxable under either regime, so post-2019 the tax system is largely indifferent to how support payments are labeled.
Splitting retirement money without a tax accident
A 401(k) divided under a Qualified Domestic Relations Order moves tax-free to the receiving spouse, who can roll it to an IRA. IRAs split under the decree transfer trustee-to-trustee. Skip the formalities, cash out and hand over a check, and the withdrawing spouse eats the tax and possibly a 10% early withdrawal penalty on money that no longer belongs to them. The paperwork order matters more here than nearly anywhere else in the divorce.
The house and the carryovers
A home transferred between spouses incident to divorce is not a taxable event, and the receiving spouse takes the existing basis, not a stepped-up one, a fact that should inform who keeps the house versus other assets of equal sticker price. Capital loss carryovers, charitable carryovers, and estimated payments made jointly also need dividing, and the decree is the right place to spell that out.
Common questions
- Who claims the kids?
- Custodial parent by default. Non-custodial parent can claim if custodial parent signs Form 8332.
- Is child support taxable to me or deductible to my ex?
- Neither. Child support is tax-neutral in both directions, under both the old and new alimony regimes.
- We sold the house as part of the divorce. What about the exclusion?
- Each spouse can exclude up to $250,000 of their share of the gain if the ownership and use tests are met, and the rules credit one spouse's use to the other under a divorce instrument. Coordinate the sale timing with the decree.
- My ex claimed the kids without the right to. Now what?
- File your correct paper return claiming them; the IRS will process both returns and apply the tiebreaker rules, requesting documentation from both households. Custody records and school enrollment usually settle it.
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