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Article: Ten Points about Divorce from a Taxation Perspective
March 1, 2011
by Sean Wandrei, CPA , Published on 2/28/2011 in Business West
As much as divorce is an emotional event, it is also a financial one. Here are ten points you need to know about the tax implications of divorce.
- To be classified as alimony, payments must be substantially equal and for a period of at least 10 years. Alimony is taxable to the payee and deductible by the payer. Payments related to division of assets are not deductible by payer or taxable to payee.
- Child support is neither taxable to payee nor deductible by the payee or payer.
- Three provisions in the law may provide relief to ‘innocent spouses’ who were unaware of a tax understatement attributable to the other spouse or to divorcing couples who lived apart from each other for at least one year.
- An ex-spouse may be eligible for Social Security benefits if the marriage lasted at least 10 years. The beneficiary spouse must be 62 or older and unmarried in order to receive the benefits.
- Update estate documents and beneficiaries to ensure that the ex-spouse has been removed from these documents and accounts.
- Net operating losses (NOL) generated while married must be allocated to each spouse based on who generated the NOL. Carryovers specifically related to an asset, such as passive carry-forwards on rental property, follow the asset as allocated in the property division.
- If the married couple used the first-time Homebuyer Tax Credit, a divorce-related transfer of the home will not trigger the recapture rule of the credit.
- In situations where there are kids, the spouse who is entitled to the dependency exemption is able to deduct the exemption and take most tax credits related to that child.
- In the case of joint custody, if the parent pays more than half the cost of maintaining a household and the child lives with that parent for more than half the year, that parent can claim head-of-household filing status even if that parent does not claim the child as a dependent.
- Generally, legal fees relating to divorce are non-deductible unless they relate to tax advice or collection of taxable alimony.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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The Corporate Transparency Act (CTA) which took effect on January 1, 2024 required "reporting companies" in the United States to disclose information about their beneficial owners to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). In May 2024, a lawsuit was filed claiming that Congress exceeded its authority under the Constitution in passing the CTA. Background: December 3, 2024 in the Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., Judge Amos Mazzant of the United States District Court (Eastern District of Texas/Sherman Division) issued a preliminary nationwide injunction barring the enforcement of the Corporate Transparency Act (CTA). December 23, 2024 the Nationwide Injunction is lifted and filing deadlines are reinstated. Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) may again enforce the CTA. FinCEN has not extended any filing deadlines. Therefore, all reporting companies should file immediately any beneficial ownership information reports (BOIRs) that were already due, and reporting companies formed prior to 2024 should file their BOIRs by January 13, 2025 (extended from January 1, 2025). December 27, 2024 the federal appeals court on Thursday reinstated a nationwide injuction halting enforcement of beneficial ownership information (BOI) reporting requirements, reversing an order the same court issued earlier this week. FinCEN issued an updated alert on its BOI information page , saying that companies can voluntarily submit BOI reports. February 7, 2025 FinCEN will consider changes to the BOI reporting requirements if a court grants the government's request for a stay of a nationwide injunction in a Texas case, according to a motion filed Wednesday, February 5th. If the stay is granted, FinCEN will extend BOI filing deadlines for 30 days, the government said in its filing in Samantha Smith and Robert Means v. U.S. Department of the Treasury, No. 6:24-CV-336 (E.D. Texas 1/7/25). BOI reporting is currently voluntary, pending further legal developments. Businesses and stakeholders should stay alert for additional updates as the situation evolves. Current Status: February 18, 2025 A federal court lifted the last remaining nationwide injunction stopping BOI reporting requirements. FinCEN which enforces BOI requirements under the CTA said it would extend filing deadline for initial, updated, and/or corrected BOI reports to March 21. However, reporting companies that were previously given a deadline later than March 21 may file their initial BOI report by that later deadline. Resources for consideration: March 21 BOI reporting deadline set; further delay possible BOI Injunction Lifted FinCEN BOI Center
February 7, 2025 FinCEN will consider changes to the BOI reporting requirements if a court grants the government's request for a stay of a nationwide injunction in a Texas case, according to a motion filed Wednesday, February 5th. If the stay is granted, FinCEN will extend BOI filing deadlines for 30 days, the government said in its filing in Samantha Smith and Robert Means v. U.S. Department of the Treasury, No. 6:24-CV-336 (E.D. Texas 1/7/25). BOI reporting is currently voluntary, pending further legal developments. Businesses and stakeholders should stay alert for additional updates as the situation evolves
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