Taxes & Divorce

Under new tax law, many taxpayers lose the benefit of deducting legal fees for divorce as itemized deductions due to new limitations. Taxpayers who claim the standard deduction in 2021 instead of itemizing will not be able to deduct legal fees.

Divorce and its associated tax issues can be complex. In many cases, neither spouse can file as single until the divorce is final. A joint return generally offers the lowest tax bracket, but each spouse is then responsible for the other’s tax liability. The “innocent spouse” provisions of the tax law offer some protection to spouses who do not know about certain income and some relief from responsibility for the other's taxes.

One way for divorcing couples to avoid responsibility for the other's tax liability is to choose the married filing separately status. However, tax rates are generally higher, several potential credits may be lost, and if one spouse itemizes, both must do so.

Couples with children who lived apart during the last six months of the tax year have another option. The spouse paying the majority of household costs for a home that was also the children’s home for more than half the year can file as head of household, which offers several additional credits over married filing separately and lowers certain marginal tax rates. Furthermore, the standard deduction for head of household filers is higher than the standard deduction for married filing separately or single filers.

The custodial parent is entitled to the new $500 nonrefundable credit for dependents who do not qualify for the Child Tax Credit since the dependency exemption for each child has been repealed under the Tax Cuts and Jobs Act of 2017, through 2025.