Filing Status

If you are divorced by December 31st, you will need to file your federal return as a single taxpayer; or, if you qualify, as head of household.

Division of Assets

Consider the tax impact of your assets.  For instance, the spouse who keeps the house will be able to deduct the interest expense associated with a mortgage.

Child Support vs Alimony

Child support is not deductible by the spouse who pays it; nor is it reported as income to the spouse who receives it.

Alimony, however, is deductible by the spouse who pays it and is treated as income to the spouse that receives it.

Be careful of alimony balloon payments in the first few years, as the IRS could interpret the payment as a property settlement and disallow the deduction.  Likewise, alimony that stops at or near the year your child reaches adulthood, could be challenged as disguised child support, resulting in a disallowed deduction.

Exemptions

Hopefully your divorce decree specifies who will be claiming the children as exemptions.  If not, and if you have joint custody, the exemption typically will go to the parent who has custody the most number of days.  It might be advantageous for the parent with the higher income to take the exemption, but the exemption could be phased out at a higher income (starting at $287,650 for head of household for 2017).   You might need to have your spouse sign a form 8332 if you are claiming the exemption but have custody for less than six months.  The custodial parent may also be able to claim a child care credit for a portion of work-related child care needs.

Legal vs. Tax Fees

Legal fees related to the divorce are not deductible, but tax advice is.  If your lawyer is providing tax guidance, you should consider having such services billed separately as you can include the tax services on your schedule A, as an itemized deduction.  Also, if an accountant is providing expert services (such as a business appraisal), and also providing tax advice; you might want to have the tax services billed seperately so that you can take advantage of itemizing the fees attributed to the tax advice.

Going Forward

Update your withholdings on your W-4 or make estimate payments to reflect the changes in your tax status.  For example, if receiving alimony, consider having additional monies withheld from your employer or make estimate tax payments.

Conclusion

Under normal circumstances, taxes can be complicated.  The impact of taxes should be considered as part of your divorce settlement structure.  Seek timely professional advice from a tax advisor and your divorce attorney.