Navigating Tax Season After Divorce: Key Considerations for Floridians

1. Determining Your Filing Status

Your marital status as of December 31st of the tax year determines how you must file your taxes. In Florida, if your divorce was finalized before the end of the year, you can no longer file as Married Filing Jointly. Instead, you will need to choose between:

• Single – If you do not qualify as head of household.
• Head of Household – To qualify for Head of Household, the dependent must be a qualifying child or relative and live with you for more than half the year, with certain exceptions.

• These exceptions include:

1. Temporary Absences – If the dependent is away due to school, medical treatment, military service, business, or vacation but would otherwise have lived with you for the required time, the IRS still considers them as living with you.
2. Children of Divorced or Separated Parents – If the noncustodial parent has the right to claim the child as a dependent per a legal agreement (such as IRS Form 8332), the custodial parent may still qualify for Head of Household status if they meet other requirements.
3. Birth or Death of a Dependent During the Year – If a child was born or passed away during the tax year and lived with you for the portion of the year they were alive, they may still qualify as a dependent for Head of Household purposes.

The Head of Household status often comes with a higher standard deduction and lower tax rates, making it a preferable option if you qualify.

2. Claiming Dependents: Who Gets the Tax Benefits?

One of the most critical tax-related decisions post-divorce is determining which parent claims the dependent exemption for minor children. Under IRS rules (Publication 504):

• The custodial parent (the parent with whom the child resides for more than half the year) with certain exceptions, typically has the right to claim the child as a dependent.
• The noncustodial parent can claim the child only if the custodial parent signs IRS Form 8332, releasing their claim to the exemption. While Form 8332 is typically used, a divorce decree can sometimes stipulate which parent claims the dependency exemption, especially in cases of alternating years.

In Florida, parenting plans established during divorce proceedings often dictate who claims the child for tax purposes. If your parenting agreement specifies alternating years for claiming dependents, be sure to follow that schedule to avoid disputes or IRS audits.

3. Understanding Child Support and Alimony Tax Implications

Child Support: Not Taxable or Deductible

Under federal law, child support payments are neither deductible by the payer nor considered taxable income for the recipient. This means that if you receive child support, you do not need to report it as income, and if you pay it, you cannot deduct it on your tax return.

Alimony: Changes Under the Tax Cuts and Jobs Act

As of January 1, 2019, the Tax Cuts and Jobs Act (TCJA) eliminated the tax deduction for alimony payments for divorces finalized after that date. This means:

• If your divorce was finalized before January 1, 2019, alimony payments remain deductible for the payer and taxable for the recipient.
• If your divorce was finalized on or after January 1, 2019, alimony is not deductible for the payer, and the recipient does not report it as taxable income.

Since Florida courts use income-based guidelines for determining alimony, it’s important to factor in these tax changes when negotiating support payments.

4. Dividing Assets: Tax Implications of Property Settlements

Florida follows equitable distribution laws, meaning marital property is divided fairly (though not necessarily equally). Some tax considerations include:

• Capital Gains Tax on Property Transfers – While transferring assets as part of a divorce settlement is typically not taxable, selling property later may trigger capital gains tax. While the transfer itself is usually not a taxable event, the recipient spouse takes the original basis of the asset, which is important for calculating capital gains if the asset is later sold. If you receive the marital home, consider the potential tax consequences of selling it in the future.
• Retirement Accounts – Transferring retirement funds via a Qualified Domestic Relations Order (QDRO) allows the receiving spouse to roll over funds into an IRA without immediate tax penalties.

5. Updating Tax Withholding and Estimated Payments

Post-divorce, your income, filing status, and deductions change, affecting your tax liability. To avoid unexpected tax bills:

• Update your W-4 form with your employer to reflect your new filing status and any changes in dependents.
• Adjust estimated tax payments if you pay self-employment tax or expect significant changes in income.

6. Reviewing and Updating Estate Plans & Beneficiaries

Divorce often necessitates updates to your estate plan, beneficiary designations, and powers of attorney. Review and update:

• Retirement accounts (401(k), IRA, pensions)
• Life insurance policies
• Will and trusts
• Health care and financial power of attorney documents

7. Florida’s Homestead Exemption and Property Tax Considerations

Florida offers a Homestead Exemption that can reduce taxable property value by up to $50,000 for homeowners who reside in their primary residence. Post-divorce, only the spouse who retains ownership of the marital home can claim the exemption. Ensure that the correct spouse files for homestead exemption renewal if you keep the home.