If you were divorced in 2009 or are considering a divorce, this life event topic will cover the following tax associated issues:

Costs of a divorce

You cannot deduct legal fees and court costs for getting a divorce. However, you may be able to deduct legal fees paid for tax advice in connection with divorce and legal fees to get alimony that you must include in gross income. In addition, you may be able to deduct fees you pay to appraisers, actuaries, and accountants for services in determining your correct tax or in helping to get alimony.

You can claim deductible fees only if you itemize deductions on Schedule A. Claim them as miscellaneous deductions subject to the 2% of your adjusted gross income.

TIP: Fees you pay may include charges that are deductible and nondeductible. You should request a breakdown showing the amount charged for each service performed.

Alimony payments

Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. It does not include voluntary payments that are not made under a divorce or separation instrument.

Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Although this discussion is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony.

You can deduct alimony you paid, whether or not you itemize deductions on your return. Enter your spouse's or former spouse's social security number.

Payments not Alimony

The following rules apply to alimony regardless of when the divorce or separation decree was executed. Not all payments under a divorce or separation instrument are alimony. Alimony does not include:

Property settlements as part of your divorce decree are not taxable.

You do not recognize a gain or loss on the transfer of property between spouses, or former spouses, if the transfer is because of the divorce.

If you sell property that you own jointly to split the proceeds as part of your property settlement, you each must report your share of the gain or loss on the sale.

Property Basis

If you received property as part of the divorce decree, it is not taxable to you until you sell the property.

Once you decide to sell the property, you need to determine the basis of the property you received. Basis is a way of measuring your investment in property for tax purposes. This applies for determining your gain or loss when you sell the property.

Your basis in property received from your spouse (or former spouse) is the same as your spouse's adjusted basis. It applies whether the property's adjusted basis is less than, or equal to, or greater than either its value at the time of the transfer or any consideration you paid. It also applies even if the property's liabilities are more than its adjusted basis.

Claiming Dependents

Generally, claiming a child as a dependent after a divorce is subject to determining custody or the divorce decree.

Custody is usually determined by the most recent divorce decree or separate maintenance, or a later custody decree. If there is no decree, use the written separation agreement.

If neither a decree nor an agreement establishes custody, then the parent who had physical custody of the child for the greater part of the year is considered the custodial parent. This also applies if a decree or agreement calls for a 'split' custody, or if the validity of a decree or agreement awarding custody is uncertain because of legal proceedings pending on the last day of the calendar year.

Custodial Parent

If the parents share joint custody of a child during the year, the parent who had custody for the greater part of the rest of the year is considered the custodial parent for the tax year.

Example: Under your divorce decree, you have custody of your child for ten months of the year. Your former spouse has custody for the other two months. You and your former spouse provided the child's total support. You are considered to have provided more than half the child's support.

Non-custodial Parent

The parent who did not have custody, or who had custody for the shorter time, may still claim the child as a dependent, if the custodial parent signs Form 8332 or a similar statement agreeing not to claim the child's exemption. The non-custodial parent must attach Form 8332 or other statement to his or her return.

Example: You provided $1,000 of your child's support during the year and your spouse provided the rest. Under your written separation agreement, your spouse has custody of your child. However, your spouse signed Form 8332, or a similar statement, agreeing not to claim the child as an exemption.

Form 8332

The custodial parent can sign Form 8332, or a similar statement, agreeing not to claim the child's exemption. The exemption may be released for a single year, for a number of specified years (for example, alternate years), or for all future years.

If you are the non-custodial parent, you must attach the release to your return. If the exemption is released for more than one year, you must attach the original release to your return the first year and a copy each following year.

Similar Statement

If your divorce decree or separation agreement went into effect after 1984 and it states that you can claim the child as your dependent without regard to any condition, such as payment of support, you can attach to your return copies of the following pages from the decree or agreement instead of Form 8332:

1. The cover page (write the other parent's social security number on this page).
2. The page that states you can claim the child as your dependent, and
3. The signature page with the other parent's signature and the date of the agreement.

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