Divorce settlements in New Jersey usually involve some form of alimony payments from one spouse to the other. These divorce settlements might also involve the transfer of property from one person to the other, or large settlements.
The IRS has certain requirements when dealing with payments and property transfers. But they have exceptions and rules when these payments or transfers happen due to a divorce.
Do you have to report the alimony payments to the IRS?
No, alimony payments that you receive do not count as income on your taxes. It’s the responsibility of the person paying alimony to report their payments to the IRS and pay taxes on that money.
If your alimony agreement was signed before December 31, 2018, you do not have to report your alimony payments as part of your income. If your agreement was signed after this date, you still have to pay taxes on those payments.
Property transfers and stocks
The IRS does not require taxes when transferring property from one spouse to another if the transfer occurs because of the divorce. For the property transfer to count as being due to the divorce, it must be named in the divorce settlement or occur within one year of the divorce.
If you have to sell your house due to the divorce, you might be able to avoid paying taxes on the first $500,000 of profit. This is as long as you have lived in the house for at least two years.
Filing taxes after or during divorce
Couples in the middle of their divorce by the end of the year can still file jointly or choose the married filing separately option. Many divorcing spouses choose the latter, as it separates their finances from their soon-to-be ex.
Finances and tax liability can be tricky subjects for divorcing individuals. The good news is, the confusion will clear up as the dust settles from the divorce – and there are plenty of resources and professionals to help guide you.