How Filing Income Taxes Works During or After a Divorce in South Carolina

It’s April in South Carolina and just about everywhere you look, there are reminders that Tax Day is upon us. When you’re going through a divorce, it’s important to understand how it will affect your income tax returns. Filing taxes during or after a divorce can be more complicated than you’ve grown accustomed to, especially if your marriage was long-term or if you and your spouse always enjoyed a similar tax situation each year, but it doesn’t have to be overwhelming.

In this blog post, we’ll discuss some of the most important things you’ll need to check to ensure you’re filing your income taxes properly this year. While this post is not intended to offer tax law advice and is general in nature, it’s a great starting point for you to assess whether your situation requires further consultation with a certified tax professional, tax attorney, or other financial expert. Here’s what you need to know about how filing income taxes during or after a divorce works in South Carolina.

Filing Status

Your filing status will change after your divorce is finalized. If you were still married on December 31, 2022, you can still file as married filing jointly, if your spouse and your attorneys have agreed to this, or you may have to file married filing separately, which is typically the most expensive way to file. If your divorce was finalized before December 31, 2022, you’ll need to file as single or head of household, assuming you don’t get re-married before the end of the year.

Alimony

If you receive alimony payments, while they used to be considered taxable income, for divorces finalized after 2018, they are no longer taxable as income. Likewise, if you pay alimony to your ex-spouse, those payments are no longer considered tax-deductible. In these situations, it’s best to consult with a tax professional, since in some states it may still be possible to claim a deduction for those payments.

Child Support

Child support payments, on the other hand, are not considered taxable income to the person receiving them and they do not need to be reported on your tax return. They are also not tax deductible by the person paying them pursuant to a Court Order.

This has long been a point of contention for many parents, as the person paying the child support would often like to benefit from a tax deduction for supporting his or her dependents. More often than not, the dependent deduction only goes to the parent with primary physical placement of the children, absent an agreement or court order stating otherwise.

I often advise clients to consult with their tax professional to get a clear understanding of how much that dependency deduction is worth to each party so that the best decisions can be made for each individual family. Just like no two divorces are exactly the same, no two tax situations are exactly the same and therefore, having more information on the front end before agreeing to a settlement or court-ordered agreement that may last a decade, or more, is best for everyone.

Property Division

When property is divided during a divorce, it can and often does, have tax implications, especially when the property being divided is real estate or other large pieces of property for which property taxes may be due. Before agreeing to accept a piece of property in your divorce, be sure to ask for information about what will happen if you decide to sell that property later. For example, if you receive the marital home in your divorce settlement, but then decide to sell it afterward, that sale may generate capital gain tax that you weren’t aware of and you’re not prepared to pay come tax time.

Retirement Accounts

A similar tax consequence may result from any retirement accounts that are transferred to you in the divorce. While it may be tempting to ask for and be given large sums in retirement accounts as part of your settlement, you need to remember that if you cash any of these out to cover other living expenses or purchases before you’ve reached the required age, you may face stiff tax penalties for doing so. Be sure to talk with a financial advisor and your tax professional before agreeing to terms that leave you only with assets you can’t touch until you’re much older.

Final Thoughts

While this is far from an all-inclusive list, it is a great starting point of things to consider this April as you prepare to finalize (or start!) your taxes while going through a divorce or having just been divorced since last tax season. Remember to discuss your particular situation with an experienced tax preparer and family law attorney if you have any concerns about your court order, or lack thereof, may affect your federal, state, and local taxes.

If you and your spouse are considering divorce, don’t make any decisions about how to proceed before talking with a trusted attorney in your area. Your divorce and any agreements you create will be subject to your state’s divorce laws. Without discussing your situation with an attorney, your agreement may not be what you want or what is beneficial to your future.

If you’re in South Carolina, it’s important to contact an experienced family court attorney like J. Benjamin Stevens today to discuss your specific situation.  Even if you aren’t in South Carolina, Mr. Stevens is happy to offer referrals to a well-qualified attorney located in your state. Mr. Stevens is a Fellow in the prestigious American Academy of Matrimonial Lawyers and the International Academy of Family Lawyers, and he is a Board-Certified Family Trial Advocate by the National Board of Trial Advocacy. If you or someone you know is facing a divorce, separation, child custody, visitation, or other family law case, contact our office at (864) 598-9172 or SCFamilyLaw@offitkurman.com to schedule a consultation.