Tax Issues

The resolution of a number of divorce and family law matters, whether by agreement or litigation, implicates a host of tax-related issues for the parties involved. The Internal Revenue Service rules and regulations involved are complex, detailed, full of exceptions and qualifications, and subject to change. While parties are encouraged to consult an accountant or tax attorney if specific tax questions or issues arise, a few of the general precepts related to divorce and family law matters are as follows.

The transfer of property between spouses incident to a divorce normally is without tax consequence. The party receiving property does not receive a stepped-up basis, and will bear the full capital gains consequences upon a subsequent transfer.

Subject to many qualifications, spousal support is usually deductible to the party paying it, and taxable to the party receiving it.

Child support is not deductible to the party paying it, nor taxable to the party receiving it.

The child dependency exemption can be allocated by the court to either parent. If there is no ruling or agreement to the contrary, the party with physical custody of the child may take the exemption.

Attorney's fees associated with obtaining alimony (spousal support in Virginia) are deductible, subject to specific rules and limits.

Attorney's fees associated with obtaining or protecting capital assets may be added to the basis of those assets.

The following are some common legal and factual tax issues related to divorce and family law matters:

-Must parties continue to file joint tax returns after separation but prior to divorce?

-Are tax consequences related to property transfers and/or holdings considered by the court when deciding equitable distribution issues?

-Are parties permitted to alternate the child dependency exemption regardless of physical custody arrangements?

-Are property taxes and income taxes considered for purposes of deciding child and/or spousal support?

-Are property taxes or income taxes owed treated as marital or separate property?

To view statutory law relevant to tax issues in family law matters, follow this link to Code Section.

To view case law relevant to tax issues in family law matters, follow this link to Case Finder.

To obtain legal advice concerning tax issues related to divorce or other family law issues, please contact Raynor & Farmer, P.C.