When preparing to end a marriage, many Colorado residents feel overwhelmed by the sheer number of decisions that must be made. Divorce is a tumultuous time, both emotionally and practically. Understanding how one’s tax obligations might be affected by divorce can seem like a low priority when compared to reaching property division or child custody decisions. In reality, however, changes in taxation can have long-lasting effects and deserve consideration during this busy time.
One way that tax applications will not change is in regard to child support. Parents who are tasked with paying child support are not able to obtain a tax deduction for those payments. Child-support is viewed as an obligation that all parents have, whether or not they are living under the same roof as the other parent. Parents who receive child support will not be taxed on that income.
Alimony, on the other hand, is a different matter. Spouses who were ordered to pay alimony can deduct those payments from their tax return. This true regardless of whether or not the spouse itemizes deductions on their return. It is important to note that only spousal support outlined within the divorce agreement is eligible for the tax deduction; voluntary payments do not receive the same treatment. Spouses who will be receiving alimony should know that these payments will be taxed just as any other form of income, and they may wish to plan accordingly.
Addressing tax issues during the course of negotiating a Colorado divorce can make a big difference in each party’s financial situation in the years to come. There are a number of ways to offset any negative impact that divorce may have, including increasing withholding amounts and changing filing status. As with so many things regarding divorce, tax matters are best dealt with early in the process.
Source: cheatsheet.com, “Getting Divorced? How Divorce Affects Your Taxes“, Sheiresa Ngo, Sept. 12, 2016