The end of a marriage leads to many Arizona couples feeling anxiety and uncertainty for the future. Divorce affects their living arrangements and finances. They will need to find ways to adjust to their new lifestyles. They will also be facing a variety of income tax consequences and changes.
If spouses have their divorce decree by the last day of the year, the IRS considers them unmarried for the entire year and they thus can no longer file a joint return or use the married filing separately status. The party who has custody of the children may file as head of household. The other will have to file as a single person.
If the children live with one parent during the majority of the year, that parent will be eligible to claim them as dependents. The dependent exemption can be a major tax break. Sometimes a divorce settlement requires the other parent to receive the exemption. In this case, both parties will need to fill out Form 8332, and the non-custodial parent will have to include it with his or her return.
An ex-spouse can deduct alimony payments on Form 1040. The recipient will need to report it as income. Child support does not qualify as a deduction, nor is it considered income for tax purposes. The child tax credit goes to the parent who has primary custody. Another tax break is the mortgage interest deduction, and this will only be able to be taken by the party who remained in the home.
Taxes are just one of many divorce legal issues that will have to be confronted. As such, couples who are ending their marriage might find it advisable to have the separate representation of experienced family law attorneys.