Tax Issues After Divorce

By: Mark Rhea, J.D.- Senior Assistant Accountant

I was at Roosters Restaurant a couple of weeks ago with my family and I was reading some of the funny sayings that were on the wall. One that stuck with me is “Love is grand. Divorce is twenty grand.” Divorce is painful and expensive. One thing that is not often talked about is tax issues that arise after divorce. After reading some recent tax cases and doing taxes returns for my first busy season this year, I wanted to share what I have read and discovered.

Did you know that several days ago, a tax court refused to recognize a tax deduction for alimony paid in an amount of $137,290 over a two-year period due to the fact that although the taxpayer was able to show that he did pay his ex-wife that amount of money and it was based on an oral agreement between him and his ex-wife, the IRS would not permit the deduction for that amount as the actual court-ordered alimony only totaled $48,000 for the two-year period. As a result, the taxpayer lost an alimony deduction of $89,290 due to the fact that there was no court order requiring the additional payments. See Barry L. Bulakites v. Commissioner, TC Memo 2017-79.

Another tax court recently found  that despite the fact that parties agreed in their divorce decree that they would split any tax liabilities “50-50”, the IRS was not bound by the that determination as they were not parties to the divorce proceeding and did not agree to that split. See Mae I. Asad, et al v. Commissioner, TC Memo 2017-80.

The rude awakenings that happened to these parties may not have happened had they consulted with tax professionals first. Tax professionals can help people who are recently divorced navigate this uncertainty and can answer any questions they have. This is especially true if the other spouse was solely handling all tax matters during the marriage. A tax professional can help with any questions that they may have and with tax matters that inevitably arise with divorce such as change in filing status, dependency deductions and exemptions, income tax withholding adjustments, evaluation of itemized deductions, health care savings accounts, investment and retirement accounts, and child care expenses.

When people get divorced, it is important that they seek help in navigating through tax laws and regulations so there are no surprises. At Holbrook & Manter, we stand ready to assist you in going forward with your life and ensure that your tax matters are handled with care.