Divorce, also known in Arizona as the dissolution of marriage, is the official termination of your marriage in the eyes of the state. Although Arizona is a no-fault state and no “fault” must be given to separate, this doesn't mean divorce is a simple event. Divorce is an intricate emotional and financial event with many layers. One of the biggest mistakes couples make in Arizona during the divorce process is not considering the long and short-term tax complications that can arise from the dissolution of your marriage.
One of the most important aspects of your divorce are the financial stipulations. A marriage is not only an emotional relationship but a financial one as well. Who will keep the house? Who will pay for the house? Who has the ability to receive child support for the children and to what extent?
Keep in mind that although spousal maintenance or alimony is tax deductible, child support payments in Arizona are tax-neutral and can not be deducted. If you receive a large amount of alimony, expect to owe the IRS at the end of the year. If you are the higher income earner and wish to write off the spousal maintenance as a tax deduction, remember to give the payments in check or cash and follow all of the guidelines outlined by your divorce and tax professionals. Remember that you can not live together or file a joint return if you wish to use the deduction. Some couples choose to not itemize payments for alimony, but this is unusual as the overall tax benefit is usually greater. If you decide to not itemize the alimony payments, your ex-spouse will not have to pay taxes on the spousal maintenance received. Your marital status is determined by your marital status the last day of the tax year.
Another common tax issue parents forget is who is able to claim a children as a dependent. Traditionally this deduction goes to the parent with primary custodial powers, but it can also be transferred to the non-custodial parents using a Form 8332. As of 2013 having a dependent reduces your taxable income by $3,800. Each child under the age of 17 is also eligible for a Child Tax Credit of $1,000. In addition 35% of eligible expenses for their care up to $6,000 can be deducted from your taxable income.
Marriage and its termination are complicated legal and fiscal processes. If you are unsure of your legal obligations, contact a family law or tax professional to discuss your case. Failure to pay taxes owed may result in a audit down the road, leaving you with significant back taxes.
