How to Allocate Deductions When Divorced During the Year

by Beverly Bird

Spouses often find themselves in limbo while their divorces are playing out. This is particularly true when it comes to taxes. Tax laws are complex and they can become doubly so when you divorce during the tax year. If you and your spouse negotiate a divorce settlement, the IRS will usually abide by your agreement regarding dependent deductions, but you’ll have to file some additional paperwork with your tax return.

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Filing Options

When you divorce during the tax year, the first hurdle is determining your filing status. As long as your divorce is final by the last day of the year, you’re not married. You can either file a single return or as head of household, depending on your custody situation. However, this is not as cut-and-dried as it seems. If you’re in court for your final divorce hearing on December 20, but the judge doesn’t get around to signing your decree until January 2, you’re not legally divorced by the last day of the tax year. The determining date is usually the date that appears on your decree. However, if you lived separately during the last six months of the year, one of you may be able to file as head of household if you meet other IRS requirements, such as by having a dependent and paying for more than 50 percent of your housing costs. If you and your spouse didn’t separate by July 1, and if your divorce wasn’t final before December 31, you can only file a married joint return or married separate return.

Dependent Deductions

If you and your spouse must file married returns, you can share your deductions for the tax year by filing a joint return. You still have the right to do this if your divorce was not final by December 31. However, if you were divorced by year’s end, you’ll have to come up with a more creative way to allot your dependent deductions. If you have an even number of children, you can both claim deductions for them. For example, if you have two children, you could claim one child and your ex could claim the other. Alternatively, you can rotate the deductions yearly. You might take them in the year you’re divorced, and your ex could take them the next year. The IRS automatically gives dependent deductions to the custodial parent, but she can waive this right and you can override the IRS rule by filing Form 8332 with your returns.

Alimony and Child Support

Only the spouse paying alimony or spousal support can claim a deduction for it. The IRS doesn’t allow you to negotiate this deduction. Spouses receiving alimony must claim it as income. Additionally, your decree must specifically order the alimony payments before they're deductible. If you paid temporary alimony while your divorce was pending, this is deductible as well, as long as a court order obligated you to do so. Child support is not tax-deductible and the custodial parent does not have to claim it as income.

Associated Tax Credits

Claiming dependent deductions doesn’t necessarily mean you can file as head of household. To file as head of household, one of your children must have lived with you for at least half the year. Just because you’ve negotiated to claim the deduction for your child, it does not necessarily mean he physically resided with you long enough for you to meet this standard. This is an important distinction because several tax credits depend on your being able to file either a married joint return or as head of household. For example, if you’re not head of household or married filing jointly, you can’t claim an earned income credit or a credit for childcare costs.