Divorce is a traumatic event in anyone’s life, and the tax aspects are frequently overlooked, which can add to the distress. The following is an overview of many of the commonly encountered tax issues associated with divorce.
Family Court – All too often, family law courts make rulings that contradict federal tax law, causing confusion and inequities in divorce actions since family court rulings cannot trump federal tax law. A common occurrence is when a family court awards physical custody of a child to one parent and tells the other spouse he or she can claim the child as a dependent. However, federal tax law is very clear that the dependency goes to the custodial parent, regardless of what the family court had to say. However, if this is the arrangement that the divorcing couple actually wants, the custodial parent can provide the noncustodial parent with an IRS form relinquishing the dependency (more on this below).