Separating from a spouse brings emotional and financial complications, and tax decisions often become some of the most confusing. Filing status, dependents, childcare costs, housing arrangements, and shared expenses all require careful consideration when you’re no longer together but not yet divorced. Making informed choices can prevent disputes, reduce unexpected tax bills, and ensure compliance with IRS rules. Understanding the factors can make the transition smoother during an already challenging time.
10. Weigh Your Filing Options
If you’re separated — whether formally or informally — you may still be allowed to file a joint federal tax return as long as your divorce isn’t finalized by the end of the tax year. But the option to file jointly doesn’t automatically make it the best choice. The benefit of a joint return often depends on income differences, household dynamics, and which spouse earned more during the year.
You may also qualify to file as single or as head of household, depending on factors like who maintained the home and who supported any dependents. Each filing status comes with different tax implications, so it’s worth taking time to consider what fits your situation. Keep in mind that filing jointly can create shared liability — meaning you could be responsible if your spouse has unpaid taxes or reporting issues.
9. Transfer Retirement Assets, Tax-free
A retirement account may not seem like a top priority during a separation, but if you don’t fully understand the tax consequences of transferring assets, it can become a costly problem.
As part of your separation, some of your retirement earnings may go to your spouse (or vice versa). Failing to use the correct process could have significant tax implications. Take Jane, for example. She has been the primary earner most of the marriage, so she opted to give her estranged husband George 50 percent of her 401(k) so he could embark on a financially independent life.
Jane should have made the transfer using a qualified domestic relations order (QDRO), which would have allowed her to transfer or roll over the funds tax-free. Because she did not use a QDRO, the Internal Revenue Service taxed the distribution, leaving Jane with a hefty tax bill and an early withdrawal penalty.
Using a QDRO to arrange for the transfer of 401(k) or 403(b) retirement assets from one spouse to another allows tax-free access to the funds and avoids early withdrawal penalties. Similarly, to transfer or rollover retirement funds from an IRA, you’ll need to make a “transfer incident to divorce,” which offers the same tax benefits.
8. Don’t Double Up on the Child Tax Credit
Children are a joy, especially when it comes to claiming a Child Tax Credit.
A Child Tax Credit can shave money off your tax bill. If you and your estranged spouse are filing separately, you’ll need to decide who will claim your child as a dependent. This determination will impact potential tax credits.
Only the parent who claims a qualifying child as a dependent will be eligible for a Child Tax Credit. To qualify for a Child Tax Credit, you must have provided at least half of the child’s support during the tax year, and the child must have lived with you more than half of the tax year. Additional criteria must be met in order to qualify for a Child Tax Credit, which takes into account a child’s age, citizenshi,p and relationship to a parent, so it may be in your best interest to consult a tax adviser.
7. Claim Child and Dependent Care Tax Credit
What if you aren’t the spouse who gets to claim your child as a dependent and, therefore, potentially receive a Child Tax Credit? You can still get the credit you’re due. Namely, a Child and Dependent Care Tax Credit, as long as you meet certain criteria.
To qualify, your child needs to have been younger than 13 during the tax year, and you need to have paid someone else to take care of your child so you could work or go to school full-time. The Child and Dependent Care Tax Credit also may apply if you need childcare to conduct a job search or if you have a dependent of any age with a physical or mental disability.
6. Don’t Count on Being Able to Deduct Alimony or Child Support
If you’ve entered into a separation from your spouse, odds are the term “alimony” has been bantered around. Alimony is money paid to a spouse (or former spouse. It used to be that if you were paying alimony, it was a given that you could deduct it from your taxes, while your ex-spouse had to report it as income.
However, since the passage of the 2017 overhaul of the tax system, alimony is no longer deductible for people who get divorced between 2019 and 2025, when portions of the law expire. But people who got divorced before the passage of the law can still treat it as a tax deduction or as taxable income, depending upon which of them is receiving and which is paying.
Additionally, if you’ve split with a partner and have a child, neither the person paying child support nor the person who receives the support gets a tax deduction from it. But if you’re a payer, make sure that you keep up with your payments. Not only is it the responsible thing to do, but if you don’t, you could lose some or all of whatever tax refund you get, since both the IRS and state governments have the power to garnish it to cover overdue child support payments.
5. Forget about Taking a Deduction for Legal Fees – Probably
This one gets kind of complicated. A legal separation or pending divorce can rack up legal fees and court costs — neither of which is eligible for a tax deduction. It used to be that you could claim legal fees related to alimony or spousal support, because they were a part of producing or collecting income. You were entitled to claim that as one of your deductions if the total of your itemized deductions exceeded 2 percent of adjusted gross income.
The 2017 tax law overhaul changed all that, starting in the 2019 tax year. For divorces that occur between 2019 and 2025, when the law expires, alimony is no longer considered taxable income or a deductible expense. That means you can’t claim legal fees related to it. Nor can you claim fees for tax advice you sought related to the separation. However, the old rules still are in force if your divorce decree was issued prior to 2019.
A separation or divorce has significant repercussions on other types of taxes, ranging from income tax to property tax, and your legal counsel can help you navigate the waters. Just be sure to get an itemized billing statement from your legal counsel so you can identify the reason for each charge.
4. Track Medical Bills and Expenses
If you’ve separated, but have children together, be sure to track their medical expenses — even if you are not the custodial parent who can claim them as dependents. You may still be able to deduct your children’s medical expenses from your federal income taxes, as long as you are the one who is footing the bill.
You can even claim your child’s medical expenses as a deduction if the other parent is the one who claims the child as a dependent. In that instance, each parent still can deduct whatever medical expenses he or she actually paid. Remember in order to be able to deduct medical expenses of any sort, your total for you and/or your child has to exceed 7.5 percent of your adjusted gross income.
If you are paying for all or a portion of your child’s medical expenses, you can include them in your itemized medical expense deductions. There is a lengthy list of qualified medical expenses, so you’ll want to consult with a tax professional or peruse IRS information. Some of the most applicable include dental treatment, eyeglasses, insurance premiums (including health, life, dismemberment, and more), and prescription drugs.
3. Understand Innocent Spouse Relief
Did your estranged spouse underpay taxes or lie about assets on your last joint return? We’re not saying it happened, but we’re suggesting you should be prepared if the possibility exists. Otherwise, you may end up being equally liable for your partner’s mistakes.
The best way to cover your assets is by understanding how Innocent Spouse Relief works. If you filed a joint return with a spouse who falsified income, and then you signed the return without suspecting any wrongdoing, you may qualify for Innocent Spouse Relief. This means you won’t be held liable for unpaid taxes or anything else that may have been misrepresented.
There are other, more nuanced forms of Innocent Spouse Relief that could offer protection, even if you don’t meet the traditional criteria. If you’ve been living apart from your spouse for a year before filing an Innocent Spouse Relief request, or if you are widowed, you may still qualify. There are additional protections for spouses who were under threat of domestic violence at the time the taxes were filed, too.
2. Don’t Deduct Child Support
Child support is the term used for court-ordered payments to support a child or children aged 18 or younger. When you have children and become legally separated, child support usually factors into the arrangement. If you are not legally separated, but informally estranged, you are not required to pay child support, although some parents opt to make voluntary payments. Although these voluntary payments won’t count toward any future court-ordered child support payments, be sure to record the financial contributions you make.
Whatever the arrangement, money paid for child support is not tax-deductible. For example, if Sarah pays $300 a month in child support during her separation from Ben, it is not an expense she can deduct from her income taxes. And, if she falls behind on child support payments, her tax refund could be garnished for child support.
On the other hand, Ben, who is receiving child support, does not have to claim the money as income. Because child support can’t be claimed as income, it’s not subject to taxation, either.
1. Beware of Capital Gains
There’s only one home, and there are two of you. Clearly, you can’t both lay claim to the place if you’re heading toward divorce, so why not sell it? For many couples, it’s a solution worth exploring. There are, however, some tax traps ready to snap once the “sold” sign goes up in the front yard. Namely, the capital gains tax.
Capital gains tax is the profit from the sale of a home. To figure the amount of capital gain, sale expenses, home improvements, and the original purchase price are deducted from the sale proceeds. Anything left over is considered capital gain.
If, for example, you purchased your home two years ago and are now selling it during your separation from your spouse, you will still reap some of the benefits of capital gains tax exclusion. The amount will depend on your particular circumstances, so be sure to contact a tax professional.
Author’s Note: 10 Income Tax Tips for Separated Couples
Taxes can be complicated. After all, the tax code changes every year and, frequently, so do our circumstances. When it comes to spousal separation and division of assets, it’s important to know how seemingly simple decisions affect your finances.
