Divorcing couples in Mississippi worry about child custody and support, alimony and division of their joint assets. An issue that is frequently overlooked in many divorces is the income tax consequences of payments mandated by the divorce settlement or court decree. This post will provide a summary of the provisions that affect post-divorce income taxes paid by almost every divorcing spouse. Both the State of Mississippi and the Federal government tax personal incomes, but the tax code provisions that are pertinent to divorce are nearly identical and will not be discussed separately unless necessary.
At the conclusion of the divorce, each person must change his or her filing status to reflect the divorce. The marital status of a couple is their status as of December 31. Some couples may benefit financially from an additional year of being able to file a joint return, and they may decide to wait until after January 1 to file the decree. If a couple will owe taxes to either the state or IRS, they may wish to accelerate the timing of the divorce to avoid joint liability for the taxes that are owed.
Alimony and child support comprise the two most common payments resulting from a divorce. Alimony is considered to be taxable income to the recipient and a deductible expense to the payor. Both the obligation to pay alimony and the right to receive it must be specified in the decree or settlement. Child support, on the other hand, is not a deductible expense, and it is not taxable to the recipient.
Property division can present difficult tax problems, especially if one or more assets have been held for a substantial length of time and have appreciated in value. Anyone with questions about the tax consequences of divorce may wish to consult an experienced family lawyer for advice on the timing of the divorce, drafting a marital termination agreement and valuing joint assets.
Source: Internal Revenue Service, "Tax Effects of Divorce or Separation," accessed on May 20, 2017