Earlier this week, we began a discussion of the tax changes and considerations that come with a divorce. If the divorce process is not yet complete, the spouses must determine whether they want to file jointly or separately. Often, a joint return can result in a lower amount of tax liability, so it may be advantageous to go that route. Each situation is different, of course, so the couple will want to calculate their liability and refunds both together and separately to determine which will be the best decision for the family.

For most Americans, the ability to claim a child as a dependent can significantly lower tax liability. Because only one parent can claim a child after divorce, deciding which is going to do so can create significant conflict. Under IRS rules, a taxpayer must provide most of the support for the child in order to claim him or her as a dependent. Generally, this means that the custodial parent will get the tax break.

However, parents may decide to 'trade off' the dependency exemption each year, overriding the IRS rules (which will require the couple to fill out an IRS form). As with the decision on whether to file jointly or separately, the couple should examine the potential tax liabilities and benefits of each situation in order to determine the best choice for the family.

In addition, divorced parents should ensure that they handle support obligations and payments properly. Child support is tax neutral, meaning that it is not tax deductible for the payor spouse, nor is it taxable to the recipient. However, alimony payments are deductible from income for the payor spouse, and count as taxable income for the recipient.

Source: American Chronicle, "Divorce has obvious tax consequences, but filing issues can also crop up down the road", 10 March 2011