People understand that their financial situations will shift dramatically after a divorce. Spousal support, child support or simply the newfound reality of living on one paycheck are all factors that people have some preparation for when navigating divorce.
What is sometimes overlooked is how your tax situation will change after divorce. Below are three of the key ways your taxes may be different.
Your filing status
Perhaps the most basic change to your tax situation is your filing status. Most married couples file their taxes jointly. Now, you likely have one of two options.
You may file head of household if you have children or other dependents in your home. Otherwise, you will likely need to file single going forward.
Taxes on alimony
Spousal support—also known as alimony—is one of the biggest tax issues that couples will need to work through during divorce. Previously, alimony used to be deductible for the paying spouse. This meant that the alimony recipient would have to pay income taxes on those alimony payments.
That all changed with passage of the new tax overhaul. Now, alimony payments are no longer tax deductible. Instead, the alimony payer is responsible for the taxes, and the recipient spouse will essentially receive tax-free income.
It is important to note that this change will not affect any couples who divorce by the end of 2018. If you and your spouse are thinking about filing for divorce, it may be better to do so sooner rather than later.
Some deductions that you and your spouse enjoyed together may only be available for one spouse. Generally, only one parent will be able to claim the Earned Income Child Tax credit. Additionally, whichever spouse gets the house will be the only one who can continue to deduct the mortgage interest payments on the marital home.
It is always difficult to fully predict how your life will change when navigating through divorce proceedings. That said, taking the time to think ahead can help reduce the chances of facing disruption during the next chapter of your life.