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Separation / Tax Considerations
Tax Considerations · Virginia Separation
The tax bill hidden inside the deal.
Filing status, how support is treated, who claims the children, and the capital gains tucked into dividing property. We flag every tax angle early and bring in your accountant, so nothing surprises you in April.
The first call is a conversation, not a commitment.
The Short Answer
A separation agreement carries tax effects that can quietly change what each settlement is really worth. Your filing status, how support is treated, who claims the children, and the cost basis riding along with transferred property all matter. We are attorneys, not tax advisors, so we flag these in the agreement and bring your accountant in before you sign.
How It Works
Four tax angles worth checking first.
Two settlements that look equal on paper can land very differently once taxes are figured in. A dollar of one asset is not always a dollar of another after the tax is paid. So before you sign, it pays to look at the tax side of each major piece. Four come up the most.
Filing status
Your status for the whole year depends on whether you are married on the last day of that year. If the divorce is final by December 31, you file as single or head of household; if not, you are still married for tax purposes. The timing of the divorce can change your tax bill, and it is worth being intentional about.
How support is treated
For agreements signed after the end of 2018, spousal support is not deductible by the payer and not taxable to the recipient. That is a real change from the older rule, and it affects how a support number should be set. Child support has never been taxable or deductible. The treatment of spousal support is worth confirming with a tax professional.
Claiming the children
Generally the parent with the child most of the time claims them, unless that parent releases the claim on IRS Form 8332. Because it drives credits like the child tax credit, the agreement should say who claims which child in which years, so you do not both claim the same child and draw an IRS notice.
Property and capital gains
Moving property between spouses in a divorce is generally not taxed at the moment of transfer, but the spouse who receives it takes the original cost basis. A later sale of the home or an investment can then trigger capital gains. A retirement account divided by the right order avoids immediate tax and penalty.
Filing statusSet by your marital status on December 31. The timing of the divorce can change the bill.
Spousal supportFor post-2018 agreements: not deductible by the payer, not taxable to the recipient.
Child supportNever taxable to the recipient or deductible by the payer. It always has been this way.
The childrenCustodial parent claims them by default; the agreement should assign it year by year.
Property basisNo tax at transfer, but the original basis carries over, so a later sale can mean capital gains.
One Honest Disclaimer
We are family law attorneys, not tax advisors. We spot the tax issues, build the agreement to account for them, and tell you where the traps are. For the actual numbers and your specific return, we work alongside your accountant or a CPA, because that is who should run them.
Federal tax rules, including the treatment of support and the home-sale capital gains exclusion, change over time. Confirm the current rules with a tax professional before you rely on them.
What We Flag
Four places taxes change the math.
These are the tax issues we raise in almost every separation agreement, so the deal you sign is the deal you actually keep after April.
01
Filing Status
Married or single for the year turns on December 31. The timing of the divorce can move your tax bill.
02
Support Treatment
Post-2018 spousal support is not deductible or taxable. Child support never is. It shapes the right number.
03
Claiming the Kids
Who claims each child, in which years, with Form 8332 handled, so no one draws an IRS notice.
04
Capital Gains
Transfers are not taxed now, but the original basis carries over, so a later sale can be.
Worth Knowing
What keeps the deal whole, or quietly shrinks it.
+ Whole
The settlement holds its value when
- Assets are compared after tax, not just by sticker value
- Support is set with the current tax rule in mind
- The agreement assigns who claims each child and when
- Carryover basis is known before anyone picks an asset
- A tax professional reviews it before signing
− Shrinks
Value leaks away when
- Two unequal-after-tax assets are treated as equal
- An old assumption about deducting support is used
- Both parents try to claim the same child
- A low-basis asset is taken without seeing the future gain
- No one checks the tax angle until the return is due
Corrie Sirkin, Esq.Founding Partner
Attorney Insight
An honest word about after-tax value.
"Equal on paper is not equal after tax. A retirement account and a savings account of the same size are not the same thing, and the difference is real money."
The mistake I see most is treating every dollar as the same dollar. Say one spouse takes the savings account and the other takes a retirement account of the same balance. They look even. But one may carry tax when it comes out and the other does not, so the split was never actually even. Same story with a low-basis house or a stock that has run up: the gain is sitting there, waiting for whoever ends up selling.
I am not your accountant, and I will not pretend to be. What I do is make sure these questions get asked before you sign, not after, and that we bring in a tax professional to run the real numbers. It is a small step that keeps a fair-looking deal from turning into an unfair one once the IRS takes its share.
Questions People Ask
Plain answers about taxes.
These are the questions we hear most about taxes in a separation agreement. If yours is not here, we are happy to flag it and point you to the right professional.
Need to talk it through?
Call 571.260.0999 or send us a message.
How does divorce affect my taxes?
In several ways. Your filing status depends on whether you are married on the last day of the year, so the timing of the divorce matters. How support is treated, who claims the children, and the basis that comes with transferred property all have tax effects. We flag these in the agreement, but we are attorneys, not tax advisors, so we coordinate with your accountant on the numbers.
Is spousal support taxable?
For agreements signed after the end of 2018, no. Under current federal law, spousal support is not deductible by the person who pays it and not taxable to the person who receives it. That is a change from the old rule, so older agreements may be treated differently. Child support has never been taxable or deductible. Confirm the current treatment with a tax professional.
Who claims the children on taxes?
Generally the parent who has the child the majority of the time, the custodial parent, unless that parent releases the claim using IRS Form 8332. Because it affects credits like the child tax credit, your agreement should state who claims which child and in which years, so the two of you do not both claim the same child and trigger an IRS problem.
Will I owe tax when we divide property or sell the house?
Usually not at the moment of transfer. Property moved between spouses as part of a divorce is generally not taxed when it changes hands, but the spouse who receives it also takes on the original cost basis. That means a later sale, of a home or an investment, can trigger capital gains. A home sale has its own exclusion if you meet the ownership and use tests. This is exactly where we loop in a tax professional before you sign.
When You Are Ready
Know the after-tax number before you sign.
Tell us what is on the table and we will flag the tax angles and bring in the right professional, so the deal holds its value. Three offices across Northern Virginia, one phone number.