A divorce settlement will have an impact on one’s tax return

As Pennsylvania residents move through a divorce, there are a great many items that must be handled. This to-do list often seems to grow, even as spouses complete various tasks and diligently check items off. It is easy to overlook certain matters, and many spouses emerge from divorce with the feeling that they have left some things unaddressed. Taxes are an issue that often fall within this category, and spouses should know that their divorce settlement will impact their tax obligations in the years to come.

The most obvious shift that will take place following a divorce is the change in one’s tax filing status. Many married people file as “married” while their relationship is intact. Once a divorce has taken place, each individual will be able to change that status to “single.” In some circumstances, divorced spouses will be able to change their status to “head of household,” which can bring advantages when tax time rolls around. It is important to note that the IRS only considers one’s marital status as of the date of December 31 of the tax year in question.

Another change that will affect parents is how the tax benefits associated with children will be distributed. There are certain advantages, such as the Child and Dependent Care Credit, that can only be claimed by the custodial parent. Other benefits, such as claiming a child as a dependent, accessing the Child Tax Credit and credits for educational expenses can be shared between parents as they see fit.

These issues should be part of the divorce dialogue, and are issues that can be negotiated prior to reaching a divorce settlement. In some cases, allowing one parent to make use of these tax credits can provide significant tax savings, while not negatively impacting the other party’s tax scenario. Pennsylvania parents who would like to learn more should consult with both a tax advisor and a family law attorney to create a plan for how tax matters will be resolved during the divorce process.

Source: fool.com, “Here’s How Your Taxes Changed If You Just Got Divorced“, Dan Caplinger, Feb. 11, 2016