15th Dec 24 10:00 pm
JamieA divorce can alter both of the former spouses’ tax obligations. Several factors can affect changes in each partner’s taxes after divorce, but for income tax purposes most of these factors can be considered in one of three main categories: Changes in income, changes in dependents and deductions, and changes in filing status. Understanding some of the most common changes in annual income taxes after divorce may help you prepare for your first post-divorce tax return, but you may also wish to schedule a personalized consultation to be sure you are adequately accounting for changes in your tax liability as you take the next steps towards life after divorce. Call Colorado Divorce Law Group today at (720) 593-6442 to begin.
Many married couples select the “married filing jointly” option listed on the Internal Revenue Service (IRS) individual income tax form when they file their federal income tax returns. As discouraging as this may be to hear if you are preparing to file taxes after divorce for the first time, the United States government has built a number of “incentives” into the nation’s tax code to encourage Americans to get married and stay married. State income tax regulations often include similar provisions, but these can be less noticeable during the filing process because in many cases even couples who typically file their own tax returns (rather than working with a professional accountant) only prepare and submit a single form (often in the IRS 1040 series) and submit it electronically through one of the free tax preparation services partnered with the IRS.
Once a former couple’s divorce has been finalized by a Colorado court, the various incentives offered to spouses who select “married filing jointly” as their filing status will no longer be available, so as a general rule Colorado spouses filing taxes after divorce for the first time can usually expect to see their relative tax burdens go up to some extent. The degree of increase, however, can depend on a few factors.
One question family law attorneys hear again and again is: “Who suffers the most financially in a divorce?” Often the question is asked with a gendered inflection, or one based on traditional spousal roles: Frequently the individual asking the question is seeking to confirm (or, on the other hand, refute) the accuracy of a perception that divorce poses greater financial risks to wives vs. husbands, or (taking the opposite view) that men end up paying more for divorces than women do, and in general the question is likely to be rooted in a concern about the individual’s own financial prospects after divorce. As with so many other questions regarding the divorce process, the simplest answer is usually, “It depends” – but some context can often help people to feel more confident and less frustrated as they try to prepare themselves for the financial aspects of life after divorce.
Until fairly recently, the very limited routes to financial solvency available to women meant that marriage was in many instances an economic imperative, as well as a social norm and (often) a personal aspiration. Most people are probably aware of the decades-long debate over the “gender pay gap,” but up to a few decades ago there were numerous financial impediments to women’s achievement of self-sufficiency that could not be resolved even by finding a job with reasonable pay (in itself no small feat). As the National Archives’ blog, Pieces of History, explains, women in the United States could not typically get credit cards in their own names until 1974 – and as anyone who has ever tried to move forward financially with a poor credit history can attest, the inability to start a line of credit can put many other items, such as a personal vehicle for transportation or ownership, and in many cases even rent, of a home, well out of reach.
All of these factors together created a set of conditions in which divorced women faced very little hope of improving their financial situations through hard work and determination: Whatever resources they were awarded in the final divorce settlement might well be all they could count on for their financial futures. Consequently women had overwhelming incentives to fight for every cent they could get as alimony during divorce proceedings, and men experiencing the process from the other side often felt that they were being “taken to the cleaners” as a result.
Although the “gender pay gap” still persists to varying extents across different fields of endeavor, the cultural landscape, and the regulatory and administrative frameworks, around credit decisions, housing, hiring, and other matters key to achieving and maintaining financial independence have altered significantly in the decades since Congress passed the Equal Credit Opportunity Act. These days, a high net worth family often has two partners with roughly comparable incomes and earning potential. Some married women earn considerably more than their spouses, and while it is still more common for a woman to stay home with a couple’s children than it is for a male partner to do the same, an important (and relatively new) reality is that a spouse of either sex who enters or re-enters the workforce after a divorce is unlikely to face the same types of obstacles to financial improvement that made securing substantial, long-term spousal support so crucial for divorced women throughout most of our nation’s history.
In light of these cultural and legal developments, and in keeping with the general principle of equity, Colorado courts today aim to divide marital property during a divorce in a way that will be fair to both spouses, without regard for gender. The courts employ a similar logic in determining whether to award alimony – also known in Colorado as spousal maintenance – and, if such support is ordered, in determining the amount and duration of payments.
Along with changes in income, divorce can trigger changes in the dependents and deductions each spouse may be able to claim on their taxes. While child support payments are neither taxable income (for the former spouse who receives the payments on behalf of the supported child) nor deductible expenses (for the parent paying child support), the same conditions that often affect child support payments can affect whether a parent can claim the child as a dependent when they file their annual income taxes after divorce. For spousal maintenance orders, the time when the divorce decree is entered can impact whether those payments are taxable or deductible.
Updates to the federal tax code in recent years have resulted in some changes to the way alimony or spousal maintenance payments are handled for tax purposes. IRS guidelines generally allow former spouses making alimony payments under the terms of divorce settlements that were ordered prior to 2019 to count the payments among their deductions, while the spouses receiving those same payments must report them as part of their taxable income. From 2019 forward, however, the rules change; alimony payments made under these more recently finalized settlements are not treated as taxable for the receiving parties, and the paying parties may not include the payment amounts among their deductions. Even an older divorce settlement may be subject to the new rules if the agreement has been modified since the original entry and the order for modification specifies that the updated tax rules will apply to the order for spousal maintenance as modified.
Depending on how substantial the spousal maintenance award is in a particular instance, these changes to federal tax law can sometimes have a significant impact on both of the former spouses’ taxes after divorce. An experienced family law attorney with Colorado Divorce Law Group may be able to help you assess strategies for factoring tax planning into your spousal support negotiations.
The right to claim a child as a dependent on an individual income tax return is generally determined by residential custody arrangements – what Colorado more commonly refers to as “parenting time.” The determination can be relatively simple when one parent has the child in their home substantially more than the other (during the course of a given tax year). However, Colorado courts tend to prefer splitting parenting time as evenly as possible in the absence of important factors that suggest an even split might not be in the child’s best interests. This general tendency can mean that former spouses co-parenting in Colorado may be more likely than parents in some other states to need to apply the IRS’s tiebreaker rules to determine which parent is eligible to claim the child as a dependent on the parent’s annual income tax return. Colorado co-parents may also wish to keep in mind that the allocation of the dependent child deductible is determined separately for each tax year, and may change from one year to the next if there are adjustments in the parenting plan.
Filing taxes after divorce can be stressful and confusing, adding another layer of complications to two processes that for many people are already frustrating on their own: divorce and tax filings. Understanding some of the tax implications of divorce can prepare individuals establishing their financial independence after parting ways with their former spouses to handle these potential complications with confidence and efficiency. Planning ahead for these implications can in many cases also help Colorado residents navigating the divorce process to make wise strategic decisions as they negotiate or advance arguments for the terms of their divorce settlements. Call (720) 593-6442 today to speak with an experienced Denver area attorney at Colorado Divorce Law Group regarding the specifics of your situation.
