How your divorce settlement affects your taxes
Divorce can be complicated on many fronts—emotional, legal, and financial. And the financial side often presents itself in unexpected ways, especially at tax time. How you and your ex divide assets, handle alimony, and decide who claims the kids can all affect how much you owe or how big your refund will be.
Whether you’re newly divorced or still finalizing your settlement, understanding the tax implications now can help you avoid surprises and make sure you don’t leave money on the table.
Key Points
- Your filing status is based on your marital status as of December 31.
- Only one parent can claim a child as a dependent, as outlined in your divorce decree.
- Distributions made under a qualified domestic relations order (QDRO) avoid early withdrawal penalties, but are still subject to regular tax rules.
How to file taxes after a divorce
Once your divorce is final, your tax situation changes in several ways. The Internal Revenue Service uses your marital status as of December 31 to determine how you’ll file, and that affects your standard deduction, available tax credits, and how you report things such as alimony or shared property.
Even if you and your ex file separately, you’ll need to determine who claims dependents (if you have them) and how certain deductions are divided. Take time to review your new filing status and any financial agreements before tax season to help avoid making mistakes on your return.
Determining your tax filing status
Once your divorce is finalized, how you file will depend on your new household situation. If you pay more than half of the household’s expenses and claim at least one dependent, you may qualify as head of household. That status comes with a larger standard deduction, which can lower your taxable income and reduce what you owe. Otherwise, you’ll likely file as single.
If you’re unsure which status applies, the IRS website (irs.gov) and most tax software can guide you through the rules, or if you prefer, a tax professional can help.
Who gets to claim the kids?
Only one parent can claim a child as a dependent after a divorce. The One Big Beautiful Bill Act (OBBBA), enacted in 2025, permanently repealed personal and dependent exemptions and made the expanded child tax credit permanent. The law raised the maximum credit to $2,200 for each qualifying child, retroactive to the start of the 2025 tax year, and tied it to inflation. The parent who claims a child receives the related tax credits, which can increase a refund or reduce the amount owed.
Deciding who claims dependents in a divorce settlement
If you have more than one child, you and your ex can agree to divide the claims for dependents. For example, if you have three children, one parent might claim two children while the other claims one, or you can alternate years. Your divorce decree should spell out these arrangements to avoid confusion at tax time.
What “custodial” and “noncustodial” parent means for taxes
For tax purposes, a custodial parent lives with the child for more than half of the year. The noncustodial parent doesn’t meet that test but may still claim certain credits, such as the child tax credit, if the custodial parent signs Form 8332 giving them that right. These definitions come from IRS rules, not from court custody arrangements, so they may differ from your legal custody agreement.
Typically, the custodial parent—the one with whom the child lives for most of the year—is eligible for the earned income tax credit (EITC), child and dependent care tax credit, child tax credit, and additional child tax credit. For a noncustodial parent to claim the child tax credit or additional child tax credit, the custodial parent must sign Form 8332, which the noncustodial parent attaches to their tax return.
Establishing a clear schedule for these dependent claims will help prevent mistakes and ensure each parent receives the tax benefits they’re entitled to.
Alimony and child support: What’s taxable and what’s not
Alimony and child support are treated differently for tax purposes, and the rules depend on when your divorce was finalized.
Alimony: For divorces finalized before December 31, 2018, alimony payments are deductible for the payer (typically as an adjustment to gross income) and taxable for the recipient. These rules apply unless the decree was later amended to conform to provisions in the Tax Cuts and Jobs Act of 2017, which made alimony neither deductible nor taxable for divorces finalized in 2019 and later.
Child support: Child support payments have no effect on your taxable income. Payers can’t deduct them, and recipients don’t report them.
Splitting marital property and assets
Transferring property as part of a divorce settlement generally isn’t a taxable event—it doesn’t trigger capital gains or losses at the time of transfer. The spouse who receives the property takes it over at its original value for tax purposes, known as the cost basis in IRS terms, which means that any future sale could result in capital gains taxes. The divorce agreement should specify how property taxes are handled. It should also clarify what happens to the home, whether one spouse keeps it, both share ownership for a time, or the property is to be sold.
What if your ex fails to pay property taxes?
Even if your divorce agreement divides property tax payments, your local taxing authority can still hold both former spouses responsible for what’s owed. If one of you misses payments, the other may have to cover the balance to avoid penalties or liens on the property. Review your agreement to confirm who’s responsible and how payments are tracked.
How divorce affects your retirement accounts
If your divorce settlement divides an employer-sponsored retirement plan, such as a 401(k), 403(b), or traditional pension, the funds transfer must be done under a qualified domestic relations order (QDRO) to avoid taxes and early withdrawal penalties. A QDRO instructs the retirement plan administrator, usually the company that manages the plan (for example, Fidelity or Vanguard), to move a portion of one spouse’s account to the other’s retirement account without triggering taxes or penalties. Once the funds are in the recipient’s account, future withdrawals are subject to the normal rules and potential taxes that apply to all retirement savings.
Individual retirement account (IRA) and Roth IRA transfers don’t require a QDRO, but the division must be done as a “transfer incident to divorce,” not a withdrawal, to avoid taxes and penalties.
Are divorce legal fees tax deductible?
Legal fees related to a divorce generally aren’t tax deductible under the Tax Cuts and Jobs Act. But if you voluntarily paid your ex-spouse’s legal expenses and weren’t required to by the court, the IRS may treat that payment as a taxable gift. Legal fees for tax advice or help dividing taxable assets may still qualify as deductible expenses.
Your post-divorce tax checklist
Finalizing a divorce changes more than your relationship status. It changes how you file, save, and plan for taxes. This checklist can help ensure you’re on track:
- Confirm your filing status. Decide whether you’ll file as single or head of household.
- Update your withholding. Adjust your Form W-4 with your employer so the correct amount of tax is withheld from your paycheck.
- Coordinate dependent claims. Be sure you and your ex agree on who claims each child and that the right forms are signed for tax credits.
- Follow through on QDRO transfers. If your settlement included a qualified domestic relations order, verify that the transfer has been completed and recorded correctly.
- Check alimony terms. Check which tax rules apply to your alimony. Payments under agreements finalized before 2019 are generally deductible for the payer and taxable for the recipient, while newer agreements aren’t.
- Plan for taxes owed. If your change in filing status or income means you’ll owe taxes, budget or set up a payment plan before the filing deadline.
The bottom line
Divorce affects more than your household and bank accounts. It changes how you file, what you owe, and which credits and deductions you can claim. Understanding how alimony, child support, property transfers, and retirement accounts are taxed can help you file accurately and avoid any unexpected tax consequences. The rules may seem complicated, but knowing how they fit together puts you in control of your post-divorce finances.