Tax Breaks for the Divorced
Reducing tax liabilities during and after a divorce can help both spouses recover financially. While many of the expenses associated with divorce, including lawyer fees and court costs, are not deductible, some payments and expenses can be deducted from your taxable income.
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Attorney Fees
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Most attorney fees associated with getting a divorce are not tax deductible. However, if your lawyer gives you tax advice during the divorce, that portion of her fees may be deductible, providing that it totals more than two percent of your adjusted gross income. If your former spouse fails to pay you court-ordered alimony, and you need to hire a lawyer to secure what you are owed, your legal fees are tax deductible, as you spent them in pursuit of taxable income.
Alimony
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Alimony, also known as spousal support, is tax deductible for the person who is obligated to pay it, and the IRS treats it as the recipient's taxable income. The IRS is specific about what payments can be considered alimony for tax purposes: These payments must be cash payments and cannot take the form of non-cash property (such as real estate or a car). The spouse claiming an alimony payment as a tax deduction must file his taxes separately from the other spouse, and the alimony must be ordered as part of a written divorce or separation decree.
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Child Support
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If you are a custodial parent and your former spouse pays child support to you, the child support does not qualify as taxable income. Child support payments are not tax-deductible for the person who pays them.
Capitalization of Legal Fees
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If your lawyer spends time trying to ensure that you maintain ownership of a piece of property, such as a home, your legal fees can be capitalized and applied to the value (or basis) of the property for tax purposes. This can lessen your tax liability after the sale of the property.
Keeping Track of Legal Fees
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To make things easy for your tax preparer and to avoid problems during an audit, ask your lawyer to be very precise in his billing statements. These statements should distinguish between fees that qualify for a tax deduction and those that don't.
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