Divorce is rarely easy, and its implications on your finances can be complex. Here’s a look at the main tax consequences of divorce for you and your ex-spouse.
If you and your ex had children, one of you would likely need to pay child support to the other. Child support is not a tax-deductible expense for the parent paying, nor is it considered income for the parent receiving it.
Determining custody of the child can also affect your taxes. Whoever has primary custody can list the child as a dependent on their taxes, and the other cannot. If custody is split fifty-fifty, the parents must decide who gets to claim the child on their taxes, as they cannot both make the same claim (assuming they’re filing taxes separately).
If you have legally separated or divorced on or before December 31, 2018, spousal support is tax deductible and may be considered income by the recipient.
If you divorced or had your separation agreement modified after December 31, 2018, then spousal support payments are neither tax deductible nor considered income.
Once divorced, you should update your withholding status with your employer to ensure your taxes are correctly deducted from your income.
Does divorce affect my credit score?
In addition to taxes, many people worry about their credit scores and the toll a divorce can take. The good news is that your relationship status is not a factor in your credit; the accounts you maintain are the only focus.
Divorcing a partner does not remove your obligation for any debts with your name on it, though, so joint accounts will need to be taken care of. If you need to close an account, it may affect your credit utilization since the total available credit will decrease, but this is easy to overcome by simply getting a new credit card in your name only. And if you run into any issues where your spouse’s sole debt looks like your responsibility, disputing something on your credit report won’t hurt your score or lower your chances of applying for new accounts.
The bottom line
Divorces are stressful enough; never mind the financial implications they can cause. Knowing the ins and outs of how separating from your spouse affects your taxes and credit can make things a little less daunting, so be sure to ask supporting advisors for guidance that’s specific to your circumstances.
Source = Credello