Once a divorce is finalized, tax filing status will change from married to single or head of household. This is usually based on marital status on the last day of the year. However, there may be a number of more complex issues to consider.
For example, if there is a retirement account to divide, a document called a Qualified Domestic Relations Order (QDRO) might be required. If the account is an IRA, a QDRO is not necessary, but the paying party may want to find out whether there are steps they can take to avoid a 10% early withdrawal penalty. Further, for those needing to sell a home pursuant to the terms of the marital agreement, it could be beneficial to sell it before the divorce is final based on the tax consequences. It is important to consult with a tax attorney or an accountant to see what type of tax implications may arise.
Another important matter to consider is the tax ramifications of alimony to the payor and the payee. In years past, the payment of alimony was deductible to the person who paid alimony to the dependent spouse. However, under the 2017 Tax Cuts and Jobs Act, pursuant to a separation agreement that cites the Act, alimony payments related to a divorce that is finalized or modified after December 31, 2018, are no longer deductible by the payor and cannot be treated as taxable income to the recipient.