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Tax Considerations for Separating & Divorcing Couples

Posted by Busey Bank on Jan 23, 2023 8:15:00 AM
Busey Bank

While there are many considerations for couples separating or divorcing, one impacted area that can often be overlooked is their tax filing status.

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When couples go through a legal separation or divorce, the change in their relationship status may also affect their tax situation. The Internal Revenue Service considers a couple married for filing purposes until they get a decree of divorce or separation.

Once an individual has their decree of separation or divorce, they will need to consider the following:

  • Update withholding | Recently divorced or separated individuals will usually need to file a new Form W-4 with their employer to claim the proper withholding. If they receive alimony, they may have to make estimated tax payments. The Tax Withholding Estimator tool on can help people figure out if they need to adjust their withholding.
  • Alimony and separate maintenance | For federal tax purposes, amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments. Certain alimony or separate maintenance payments may be deductible by the payer spouse, and the recipient spouse may be required to be included in income. However, individuals can't deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments received under such an agreement are not included in the income of the recipient spouse.
  • Claim dependent children | Generally, the parent with custody of a child can claim that child on their tax return. If parents split custody 50-50 and aren't filing a joint return, they'll have to decide which parent gets to claim the child. There are tie-breaker rules if the parents can't agree. Child support payments aren't deductible by the payer and aren't taxable to the payee.
  • Reporting property transfers | Usually, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce. People may have to report the transaction on a gift tax return.
  • Consider filing status | Divorcing couples who are still married as of the last day of the year are treated as married for the year and must determine their filing status. The What Is My Filing Status tool on can help people figure out what status makes sense for their situation.

Below are the statuses separating or recently divorced people should consider:

  • Married filing jointly | On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately. However, this is an option only if you are still married on the last day of the year.

  • Married filing separately | If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them. Keep in mind, if one spouse uses the standard deduction, the other spouse must as well, even if they could otherwise itemize. There are many differences in thresholds when filing married filing separately.

  • Head of household | Some separated people may be eligible to file as head of household if all of these apply: (1) Their spouse didn't live in their home for the last six months of the year, (2) They paid more than half the cost of keeping up their home for the year, and (3) Their home was the main home of their dependent child for more than half the year.

  • Single | Once the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.

At Busey Wealth Management, we develop, implement and execute strategic financial solutions focused on growing, protecting and preserving your wealth, while delivering the highest quality of service. Learn more about our comprehensive services at

For more details on tax considerations, please visit and/or consult with your legal advisors.

This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.

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Topics: Wealth

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