You can expect big changes to your household finances after a divorce. Many people experience an adjustment period that lasts for months, if not a couple of years. Everything from your income to your financial obligations will change.
When creating a budget, it’s important to have a realistic idea about your income and your obligations. You also need to think about your taxes. After a divorce, your income tax circumstances will potentially also be different.
What are some of the most important tax considerations of getting divorced?
You can file as the head of your own household
Filing as a married couple is often the preferred approach. You may have filed a joint return with your spouse. If you did not, they may have they have a higher income than you do, so they claimed the head of household status.
After your divorce, you will be able to file your taxes as the head of your own household even if you receive financial support from your ex. Head of household status will make you eligible for some deductions that could be beneficial for you after the divorce. Technically, you can only claim this status after the courts finalize your divorce. You must be divorced as of December 31 to file a tax return for that year as the head of your household.
Only one of you can claim the children
Children come with certain tax incentives. There’s a child tax credit assessed per child. Although no one has children just because of the tax breaks that they offer, their value for income tax filing purposes is significant. Parents may fight over who gets to claim the children or their expenses on their taxes.
Your custody order will likely dictate which of you gets to claim the children as their dependents in the divorce. It is most common for spouses to assign this right to one parent, although sometimes couples alternate years or divide which children they each claim. Parents can also claim the payment of medical and educational expenses for their children, but again, only one parent may do so.
Understanding how divorce may affect your tax circumstances can help you create a more holistic financial plan for your life after divorce.