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Tax implications for the recently divorced

The New Year is here, and for many Maryland residents that means it is time to start preparing their taxes. Those who are newly divorced may face some new tax implications this year. Divorce affects taxes in a number of ways, and it is important to account for this during the divorce process in order to avoid unintended tax penalties.

Maryland residents should talk about such issues with their divorce attorneys, as well as their tax preparers or attorneys when necessary, as the tax implications of divorce vary from case to case. In general, however, there are a few things divorcing or divorced taxpayers must keep in mind.

  1. Filing status: Your filing status depends on the date of your divorce. An individual's marital status on December 31 is his or her tax filing status for that year. For those whose divorces were not final as of Dec. 31, 2013, it is possible to choose whether to file jointly or file as married filing separately.
  2. Alimony: Alimony is to be treated as deductible by the person paying it, and it must be treated as taxable income by the person receiving it. However, in order for alimony to be treated like this under federal income tax law, it must meet a number of standards; for example, the arrangement must be written into a separation or divorce agreement.
  3. Child Support: Child support is not deductible by the parent paying it, nor is it to be reported as income by the parent receiving it.
  4. Claiming dependents: It is possible to claim a child as a dependent on your tax return if the child resided with you for more of the year than with your ex-spouse. This means that if you are the custodial parent, you can claim the child as a dependent. In some cases, however, the custodial parent may sign a waiver agreeing not to claim the exemption, allowing the non-custodial parent to do so.

The tax implications of a property settlement, alimony, child custody and child support arrangements can have a significant financial impact on a household, and it is important to consider this when negotiating the terms of divorce in Maryland.

Source: Market Watch, "There is one tax break for divorcees," Bill Bischoff, Dec. 16, 2013

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