Divorce and Taxes

Seeking Divorce & Tax Relief in San Diego? 

Divorce is a life-altering event that brings emotional, financial, and legal challenges. In addition to the emotional toll, divorcing couples must also navigate the intricate web of tax implications that come with the dissolution of their marriage. This is especially true for residents of California, where divorce laws and tax regulations intersect in unique ways. At Moore, Schulman & Moore, APC, we are experienced in helping individuals and families in San Diego County navigate the divorce process and understand the tax implications of a wide range of divorce-related issues.

For help with your divorce and tax issues, contact our firm today at (858) 492-7968.

Filing Status

One of the first decisions divorcing couples in California need to make is whether to file as married or single for their taxes. Your marital status on December 31st of the tax year will determine your filing status for that year. If your divorce is finalized by this date, you'll likely be required to file as either single or head of household if you have dependents. Keep in mind that your filing status will affect your tax rates, deductions, and credits.

Property Division

California follows community property laws, which means that most assets acquired during the marriage are considered jointly owned by both spouses and should be divided equally during divorce proceedings. However, the tax implications of property division can be complex.

Capital Gains Tax

When transferring assets such as real estate or stocks, capital gains tax may come into play. California law allows for the tax-free transfer of community property between spouses during divorce. This means that neither spouse will be subject to capital gains tax at the time of transfer. However, when the recipient eventually sells the asset, capital gains tax will apply based on the original purchase price.

Retirement Accounts

The division of retirement accounts like 401(k)s and IRAs can have tax consequences. A Qualified Domestic Relations Order (QDRO) may be necessary to ensure that the transfer of retirement funds is not subject to early withdrawal penalties or immediate taxation. It's essential to consult a financial professional to navigate these complexities.

Spousal Support (Alimony) and Child Support

Both spousal support and child support have distinct tax implications for both the payer and the recipient.

Spousal Support

The tax treatment of spousal support changed as of January 1, 2019, due to the Tax Cuts and Jobs Act. For divorces finalized after this date, spousal support payments are no longer tax-deductible for the payer, and the recipient does not include these payments as taxable income. However, this only applies to agreements made after 2018, so it's crucial to understand the specific terms of your divorce agreement.

Child Support

Child support payments do not have tax implications. They are not deductible by the payer and are not considered taxable income for the recipient. It's important to differentiate between child support and other forms of financial support, as the tax treatment varies.

For help with your divorce and tax issues, contact our firm today at (858) 492-7968.