Tax Issues Related to a Divorce

Tax Consequences of Divorce

Cash SettlementAs with other life events, like having a child or changing employment, when you go through a divorce your annual tax filing will be affected.  Under Internal Revenue Code (IRC) 1041(a), no gain or loss of income or property is recognized on transfers between ex-spouses if it is made within one year after your divorce or if it is related to the ending of the marriage.  In order to be “related to the ending of the marriage”, the transfer must have been pursuant to a divorce or separation instrument and occurs within six years after the date on which the marriage ended.

Divorce Costs that are Tax Deductible

When you’re going through a divorce in New Jersey, there are certain related expenses that you can write off in your tax deductions.  Some examples of divorce costs that may be deducted from your annual income when filing your tax returns include the following legal and accounting fees:

  • Fees paid for tax advice related to a divorce
  • Fees paid to determine or collect alimony
  • Fees paid to determine estate tax consequences of a property settlement
  • Fees paid to professionals, such as appraisers and actuaries, if the services were performed to determine the correct amount of tax or to assist in obtaining alimony

Legal and professional fees, whether owed to your attorney or your spouse’s attorney, as well as court costs related to getting a divorce, are generally not deductible.  Additionally, expenses paid in arranging child custody and child support and expenses paid in developing a financial settlement or in efforts to retain income-producing property are not tax-deductible.

If you are going through a divorce in New Jersey, it’s important to speak with a lawyer who works alongside financial experts to help clients come to a fair resolution of their marriage.  Call the team of experienced divorce lawyers at Villani & DeLuca today at (732) 965-3350.