Divorce and Taxes in North Carolina: What You Need to Know

Divorce is tough, and it messes with just about everything in your life — including your taxes. Whether you’re already divorced or just starting the process, figuring out how this change will affect your taxes is super important. You might be dealing with changes in your filing status, child-related deductions, alimony, and how your property is divided. There’s a lot to think about, and missing something could cost you in penalties or lost benefits.

But don’t worry – it’s not impossible to get through. A little bit of planning can go a long way. A tax professional or a divorce attorney in North Carolina can make this a lot easier. We’ll break down the major tax issues you should keep in mind as you navigate life after divorce in North Carolina.

Filing status after divorce

Your filing status depends on your marital status as of December 31 of the tax year. The IRS doesn’t care whether your divorce was finalized on January 1 or December 31 — the only date that matters is the last day of the year. Here are your options:

• Single: If your divorce was finalized before December 31, you must file as single.
• Head of household: If you qualify, this status can offer a lower tax rate and a higher standard deduction. To file as head of household, you must have paid more than half the costs of maintaining a home and have a dependent living with you for at least six months of the year.
• Married filed separately: If you’re still legally married as of December 31, but don’t want to file jointly, you can choose this status. However, it often results in a higher tax bill.

Choosing the right filing status can make a significant difference in your tax liability. If you’re unsure which is best, consult with a tax professional or a divorce attorney in North Carolina.

Claiming dependents & child-related tax benefits

One of the most common post-divorce tax questions is: “Who gets to claim the kids?” The IRS typically allows the custodial parent (the one the child lives with for more than half of the year) to claim the child as a dependent. However, there are exceptions:

• Custody agreements matter: If your divorce decree specifies who claims the child, follow that agreement. If no agreement exists, the IRS default rule applies.
• Form 8332: A custodial parent can release their right to claim a dependent using IRS Form 8332, allowing the noncustodial parent to claim the child instead.
• Child tax credit: In 2024, the child tax credit was worth up to $2,000 per child, but only the parent claiming the child as a dependent can take it.
• Earned income tax credit (EITC): Only the custodial parent can claim this credit.

For more details, check out the IRS rules on dependents.

Alimony & child support: tax implications

Alimony and child support payments are treated very differently under current tax law.

• Alimony: For divorces finalized after January 1, 2019, alimony payments are not tax-deductible for the payer and are not considered taxable income for the recipient. If your divorce was finalized before 2019, different tax rules may apply.
• Child support: Unlike alimony, child support is never tax-deductible for the payer and is not taxable income for the recipient.

If you’re negotiating a divorce settlement, understanding these tax implications is crucial. Some individuals choose to structure spousal support differently due to these rules – an issue best discussed with an experienced divorce attorney and tax professional.

Division of assets & property tax considerations

When couples divide property in a divorce, taxes often come into play. Some key points to consider:

• Transfer of assets: In most cases, transferring property as part of a divorce settlement does not create an immediate tax liability. However, selling assets later may trigger capital gains taxes.
• Selling the marital home: If you and your ex sell the family home, you may be eligible for the capital gains tax exclusion ($250,000 for single filers, $500,000 for married couples). However, specific rules apply.
• Retirement accounts: Dividing a 401(k) or IRA? A properly executed Qualified Domestic Relations Order (QDRO) is required to avoid penalties and tax liabilities.

For more guidance, visit the IRS Capital Gains Tax page.

Handling tax debts & liabilities

What happens if you and your ex owe taxes from when you filed jointly? Here’s what you need to know:

• Joint tax debt: If you filed a joint return while married and still owe money, both spouses are usually responsible for the debt, even after divorce.
• Innocent spouse relief: If your ex made mistakes or committed fraud on a joint return, you may be eligible for innocent spouse relief, which could free you from responsibility for the debt.
• Separation of liability relief: This option allows you to divide tax debt between you and your former spouse under certain conditions.

If tax debt is a concern, speaking with a tax professional or a divorce attorney is crucial.

Final tax tips & when to seek help

Navigating taxes after divorce isn’t easy. Here are some final tips to keep in mind:

• Update your W-4: If you’re employed, adjusting your tax withholding can prevent surprises at tax time.
• Keep records: Maintain copies of divorce agreements, tax returns, and support payment records.
• Consult a professional: Every situation is unique. If you’re unsure about your tax obligations, working with a tax advisor or divorce attorney in North Carolina can help ensure you’re making the best financial decisions.

Take control of your tax situation post-divorce

Divorce impacts your taxes in many ways, including your filing status, child tax credits, alimony, and property division. Understanding these tax implications now can save you headaches (and money) down the road. If you’re unsure about how your divorce will affect your taxes, take proactive steps today.

If you are contemplating a divorce and need more information about the costs, please reach out to a Charlotte divorce lawyer at Epperson Law Group. Call our office or submit our contact form to schedule an appointment in Concord, Charlotte, Boone, or Weddington today.