Divorce changes your filing status based on your marital status on December 31, makes most property transfers tax-free with carryover basis, and gives the custodial parent the first claim to child-related tax benefits. The expensive mistakes are assuming the decree controls the taxes and missing the Form 8332 and basis-record details.

What is your filing status in the year you divorce?

Your filing status depends partly on your marital status on the last day of your tax year (IRS Pub. 504). If you have a final decree of divorce or separate maintenance by December 31, you are unmarried for the whole year, and you file as single or, if you meet the requirements, head of household. If you are separated but no final decree exists by year end, you are still married for tax purposes and your choices are married filing jointly or married filing separately.

There is a middle path. You are "considered unmarried" on the last day of the year if you file a separate return, paid more than half the cost of keeping up your home, your spouse did not live in your home during the last six months of the year, and your home was the main home of your child, stepchild, or foster child for more than half the year (IRS Pub. 504). Meet those tests plus the head-of-household requirements, paying more than half the household costs and having a qualifying person live with you more than half the year, and you can file as head of household even before the divorce is final.

One warning that surprises people: if you filed jointly in prior years, you remain jointly and individually liable for the tax, interest, and penalties on those joint returns even if your decree says your former spouse is responsible (IRS Pub. 504). A divorce decree does not override the IRS. If that liability is a concern, ask about innocent spouse relief on Form 8857.

Who gets to claim the children?

In most cases, the child of divorced or separated parents is the qualifying child of the custodial parent, because of the residency test. The custodial parent is the parent with whom the child lived for the greater number of nights during the year. If the nights are equal, the parent with the higher adjusted gross income is the custodial parent (IRS Pub. 504).

The noncustodial parent can claim the child only if four conditions are met, including a signed written declaration from the custodial parent releasing the claim. That declaration is Form 8332, and for any divorce decree or separation agreement that went into effect after 2008, decree language alone is not enough: the custodial parent must sign Form 8332 or an equivalent statement, and the noncustodial parent must attach a copy to the return every year (IRS Pub. 504).

What the release actually transfers is narrower than most parents expect. It lets the noncustodial parent claim the child tax credit, additional child tax credit, and credit for other dependents. It does not transfer the earned income credit, the dependent care credit, or head of household filing status (IRS Pub. 504). The release can cover one year, alternate years, or all future years, and the custodial parent can revoke it with written notice (IRS Pub. 504).

Is alimony still deductible?

It depends on when your agreement was signed. If you entered into your divorce or separation agreement on or before December 31, 2018, and it has not been modified since to opt into the new rules, alimony is deductible by the payer and taxable to the recipient (IRS Pub. 504). If your agreement was executed after December 31, 2018, the payments are neither deductible by the payer nor includible in the recipient's income. The same no-deduction, no-inclusion treatment applies to a pre-2019 agreement modified after 2018 if the modification expressly adopts the new rules (IRS Pub. 504).

Child support is simpler and harsher: child support payments are never deductible by the payer and never taxable to the recipient (IRS Pub. 504). And if a single payment covers both alimony and child support and you pay less than the full amount, the IRS applies what you paid to child support first (IRS Pub. 504).

Do you owe tax when you divide the property?

Generally, no. There is no recognized gain or loss on a transfer of property between spouses, or between former spouses when the transfer is incident to the divorce, even if the transfer was in exchange for cash, the release of marital rights, or the assumption of liabilities (IRS Pub. 504; IRC §1041). A transfer is incident to the divorce if it occurs within one year after the marriage ends, or if it is related to the end of the marriage, which generally means it is made under the divorce or separation instrument within six years after the marriage ends (IRS Pub. 504).

The tax bill does not disappear; it moves. Property you receive from your spouse is treated as acquired by gift, and your basis is your spouse's adjusted basis, whether that basis is higher or lower than the property's value at transfer (IRS Pub. 504). When you later sell, your gain or loss is measured from that carryover basis. This is why the spouse transferring property must hand over sufficient records to determine adjusted basis and holding period (IRS Pub. 504). A house "worth" $600,000 with a $200,000 basis carries a $400,000 built-in gain to whoever receives it, and that fact should be priced into the settlement.

One related trap: transfers to a former spouse are not automatically free of gift tax. A transfer under a divorce decree from a court with the power to prescribe a property settlement is generally excepted, but if your transfer does not fit an exception you may have to report it on a gift tax return (IRS Pub. 504).

What about retirement accounts?

Retirement divisions have their own paperwork. Benefits from a qualified retirement plan, such as most pensions and profit-sharing plans, are typically assigned through a qualified domestic relations order (QDRO), which recognizes a spouse, former spouse, or dependent's right to receive benefits and can relate to marital property rights, child support, or alimony (IRS Pub. 504). An IRA transferred under a divorce or separation instrument receives similar treatment to the HSA and Archer MSA rules: the transfer itself is not taxable, and the interest is treated as the recipient spouse's account (IRS Pub. 504). Do not move retirement money before the order or instrument language is in place; an early distribution without the proper vehicle is just a taxable distribution.

What should you document before the ink dries?

Divorce tax planning is mostly an inventory exercise. Before the settlement is final, assemble these with your tax preparer, not just your attorney:

• Basis records for every asset changing hands: purchase prices, improvements, depreciation taken, and holding periods. The recipient inherits the transferor's basis, so missing records become a future tax bill.

• Debt and title: who owes what, which liabilities transfer with which asset, and how title will read after the transfer.

• Carryforwards: capital loss carryforwards, passive activity losses, and charitable carryforwards do not automatically split; know where they live and who keeps them.

• Estimated payments and withholding: if you have been paying joint estimates, decide whose account they credit and reset withholding (a new Form W-4 is due within 10 days after the divorce or separation if your withholding changes) (IRS Pub. 504).

• Beneficiary designations: retirement accounts, life insurance, and transfer-on-death designations do not update themselves when the decree is signed.

Updated October 28, 2026.

This article is free educational content, not tax advice for your specific situation. If you want a plan built around your actual numbers, that is what our paid tax planning engagements do.