7 Tax Changes To Watch Out for After Getting a Divorce
Whether you consider a divorce a true heartbreak or the end of an error, it will have a significant impact on your finances — particularly your taxes. Breaking up may or may not be hard to do, but one thing is certain: You’ll need a clear guide to the tax changes that can follow a divorce.
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While MoneyLion can’t come over to your house with gallons of ice cream and a shoulder to cry on, we can connect you with a tax expert who can explain the tax changes to watch out for when you get divorced. Meet Daniel Roccanti, a CPA and real estate and construction adviser at James Moore & Co.
“Divorce is emotionally and financially complex,” he said. “While most people focus on asset division and custody arrangements, many overlook the significant tax consequences that follow a divorce.”
1. Your Filing Status Changes
Roccanti reminds you that your filing status is determined by your marital status as of Dec. 31 of the tax year. Essentially, if you ring in the new year with your divorce finalized, you’ll file as single or head of household (if you qualify).
“Head of household status can provide a larger standard deduction and more favorable tax brackets — but only if you meet strict requirements regarding dependents and household support,” he says. “Choosing the wrong status can result in unnecessary tax payments.”
A tax professional can help you determine which filing status best fits your situation.
2. Who Claims the Children Matters
Children are often the most emotionally and financially fraught aspect of divorce. Roccanti says that tax benefits related to your dependents — including the Child Tax Credit and the child and dependent care credit — can have a major impact on your tax bill.
“Typically, the custodial parent claims the child unless otherwise agreed in the divorce decree,” he said. “However, special rules allow parents to alternate claims or transfer certain credits.”
When you’re working through your divorce agreement, you’ll want to ensure you have clear documentation to avoid disputes or complications with the IRS.
3. Alimony Rules Have Changed
Alimony can be another contentious issue during divorce. Under current federal law, alimony payments are no longer deductible by the payer and are not taxable income for the recipient — for divorces finalized after 2018.
“This change dramatically altered the tax planning landscape for divorcing couples,” Roccanti said.
Divorce agreements finalized before 2019 may still follow the old rules, so it’s critical to understand which tax framework applies to your situation.
4. Asset Transfers May Be Tax-Free — but Not Forever
Divorce settlements often stipulate that assets be transferred between spouses. Generally, these transfers are not taxable at the time they occur. But Roccanti cautions that selling those assets later can trigger capital gains taxes.
“Cost basis matters significantly,” he said.
He reminds you that it’s crucial for you and your soon-to-be ex to understand who will ultimately bear the tax burden on investments, real estate or other appreciated assets when they’re eventually sold.
5. Retirement Accounts Require Special Handling
Speaking of retirement accounts, Roccanti notes that dividing 401(k)s, pensions and similar plans typically requires a Qualified Domestic Relations Order, or QDRO.
“Improper transfers can trigger penalties or unintended taxation,” he said. “When handled correctly, these transfers can occur without immediate tax consequences — but precision is critical.”
Without a valid QDRO, distributions may be taxed incorrectly or penalized, according to IRS guidance.
6. Your Withholding Should Be Updated Immediately
Your daily life changes significantly during a divorce — from your routines to your home decor. Your income, deductions and credits may change, too. That’s why Roccanti says you should update your Form W-4 with your employer as soon as possible.
If you don’t, you risk:
Overpaying taxes throughout the year
Owing an unexpected amount at filing time
“Updating withholding promptly helps stabilize cash flow post-divorce,” he says.
7. Your Estate Plan Needs Immediate Review
Well, you didn’t quite make it to “‘til death do us part,” so now it’s time to update your will, trust, powers of attorney and beneficiary designations. If you don’t, your former spouse could still be listed as your:
Beneficiary on retirement accounts
Decision-maker under a power of attorney
Primary heir under outdated estate documents
If the thought of your ex having power of attorney over you or getting your assets bothers you, you’ll agree with what Roccanti says: “Estate planning updates are not optional after divorce — they’re essential.”
The Bottom Line
Divorce isn’t just a legal separation. Roccanti describes it as a financial reset.
“From filing status changes and dependency credits to retirement accounts and estate documents, the tax implications can be substantial,” he said. “Proactive planning turns tax complexity into clarity.”
Unsurprisingly, he recommends working with a knowledgeable CPA to ensure you don’t miss opportunities — or accidentally create costly mistakes — during an already challenging time.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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