Skip to Content

Tax Issues in Divorce

Tax Issues in DivorceModesto Tax Issues in Divorce Attorney

When parties divorce, the event typically entails both physical separation and separation of the parties’ property and finances. Both physical separation and financial separation have potentially significant tax consequences.

Property division usually entails transfers of cash and other assets between the spouses at the time of the divorce. Some transfers would be taxable events, but the Internal Revenue Code permits the parties to treat them as nontaxable.

Divorce changes the filing status of taxpayers. Married couples normally file joint returns. Divorced spouses are no longer entitled to file jointly. After divorce, child-related tax benefits (dependency exemptions, child care credit, child tax credit, and educational tax credits) previously claimed on the parents’ joint return, must now be allocated to one parent or the other.

Payments representing child support are neither includible in the income of the payee nor deductible by the payor. In contrast, spousal support (alimony) is income to the recipient and deductible by the payor.

Property Transfers Between Spouses or Former Spouses Incident to Divorce

No gain or loss is recognized to the transfer on a transfer of property (including the marital home) between spouses or between former spouses incidence to a divorce. IRC 1041(a), nor is the value of the property included in the gross income of the transferee. The transferee’s basis is equal to the transferor’s basis immediately before the transfer.

Distribution to a Nonparticipant Incident to Divorce or Separation

A distribution made by a qualified plan to a spouse under the terms of a qualified domestic relations order (QDRO) is taxable to the alternate payee and not to the participant. IRC 402(e).

A QDRO is a judgment, decree or order, including approval of a property settlement agreement, made under California’s community property law. The QDRO must relate to the martial property rights of a spouse or former spouse.

Distributions made under the terms of a QDRO may qualify for rollover into an IRA or other type of plan.

Transfer of an individuals’ interest in an IRA by the terms of a divorce or separation agreement is not considered to be a taxable transfer and becomes the property of the spouse or former spouse and may be rolled over. IRC 408.

Call: (209) 214-6600 | Contact Us | Credit Cards Accepted | Free Fifteen-Minute Initial Consultation | Spanish Language Services Available | Weekdays, Evening and Weekends

¿Quiere ver ésta página en español? Por favor, haga clic en éste enlace.

Back to top