Key Takeaways:

  • Your marital status on December 31 generally determines your filing options.
  • Federal and New Jersey tax rules treat alimony differently.
  • Tax claims involving children, home sales, and retirement transfers each require separate planning.

Finalizing a divorce before December 31 can affect your tax filing status, available credits, and settlement calculations. Separating couples in Marlton and Evesham Township should look at both federal and New Jersey tax law before deciding when to finalize a divorce. Ask your lawyer and tax preparer to compare the consequences of a December judgment with those of a divorce finalized in the new year.

Does the Date Your Divorce Is Final Affect Your Taxes?

If your divorce is final by December 31, you generally count as “unmarried” for that entire tax year. Your tax filing status after divorce will usually be single or, if you qualify, head of household. 

Should You File Jointly or Separately During a Divorce?

If you remain married at year-end, consider these filing options:

  • Married filing jointly: Both spouses must agree. A joint return may reduce your combined taxes, but it generally makes each spouse responsible for the entire tax debt.
  • Married filing separately: Separate returns avoid a joint filing but can limit your credits and increase your combined taxes.
  • Head of household: Certain married parents qualify as “considered unmarried.” Generally, you must file separately, pay more than half the home’s costs, have a qualifying child living there for more than half the year, and live apart from your spouse throughout the final six months. 

Is Alimony Taxable in New Jersey?

Federal treatment: Under the Tax Cuts and Jobs Act, payers cannot deduct alimony under divorce or separation instruments executed after 2018, and recipients do not report it as taxable income. 

New Jersey treatment: Qualifying alimony generally remains deductible by the payer and taxable to the recipient for state income tax purposes. 

Who Claims the Children on Their Taxes?

The “custodial parent” (generally the parent with more overnight stays) usually claims the child as a dependent. If the custodial parent does not wish to claim the child, that parent can use Form 8332 to release their claim, allowing the other parent to claim eligible child tax benefits, including the child tax credit (though, notably, the release does not transfer head-of-household status or the earned income credit). 

What Are the Tax Rules for Selling the Marital Home?

State law allows divorcees to exclude up to $250,000 of home-sale gain per eligible taxpayer, or $500,000 for qualifying joint filers, with ownership and residence requirements generally involving two of the preceding five years.

How Do Retirement Transfers Affect Taxes?

Dividing a 401(k) or pension commonly requires a Qualified Domestic Relations Order (QDRO). An eligible direct rollover can defer your taxes; if you receive cash from your retirement funds, you may need to pay taxes on them as eligible income.

Frequently Asked Questions (FAQs): 

Should I finalize divorce before December 31?

Ask your tax preparer to compare the tax consequences of finalizing before and after December 31. Filing status, credits, and a planned home sale can affect which timing works better for you.

Can I claim an alimony tax deduction after 2018?

For federal taxes, the answer depends on when the divorce or separation instrument was executed and whether later modifications adopted the new rules. New Jersey generally still permits deductions for qualifying alimony.

Does paying child support let me claim the child?

No. Paying support alone does not automatically qualify you for eligibility. Rather, the state’s residency and applicable dependency-release rules determine whether you can claim the child.

Before Your Divorce in NJ, Discuss All That Goes Along With the Process With Our Knowledgeable Marlton Divorce Lawyers at Burnham Douglass

Before settling year-end financial terms, speak with our Marlton divorce lawyers at Burnham Douglass. For a free consultation, call us today at 856-751-5505 or submit our online contact form. With office locations in Marlton and Northfield, New Jersey, we proudly serve clients in the surrounding areas.