Dividing Finances? Understand the Tax Impact First
Divorce isn’t just an emotional process—it’s a financial event with long-term tax consequences. Whether you’re finalizing a divorce in Massachusetts or negotiating your settlement terms, it’s critical to understand how the IRS views everything from alimony to property division.
1. Alimony Is No Longer Deductible (For Most)
Thanks to the 2017 Tax Cuts and Jobs Act, alimony payments from divorces finalized after January 1, 2019, are no longer tax-deductible for the payer—and they’re no longer taxable income for the recipient. This impacts how alimony is calculated and negotiated during Massachusetts divorce proceedings.
2. Property Transfers Between Spouses Are Generally Tax-Free
When dividing marital property—like homes, investment accounts, or retirement savings—transfers between spouses as part of the divorce are usually non-taxable. But that doesn’t mean there are no consequences down the road. The spouse receiving an asset also inherits its cost basis, which can result in capital gains taxes later.
3. Retirement Accounts Require Strategic Planning
Dividing retirement funds like 401(k)s or pensions often requires a QDRO (Qualified Domestic Relations Order). Without proper documentation, early withdrawal penalties and tax liabilities can apply. Our team can help you coordinate this with your financial advisor or CPA.
4. Who Claims the Kids? Don’t Guess.
Claiming a child as a dependent affects eligibility for the Child Tax Credit, Earned Income Credit, and Head of Household status. Your divorce agreement should clearly define who claims each child, and in what years, to avoid IRS disputes later on.
Plan Ahead with a Divorce Attorney Who Understands the Numbers
At Greco Law, we help clients throughout Massachusetts—including Woburn, Lexington, and Reading—make informed decisions that reflect both emotional needs and financial realities.
Book a consultation to ensure your divorce is structured to protect your future—on paper and at tax time.
