In agreeing upon the amount of alimony and child support to be paid and the right to dependency exemptions, both your tax bracket and your ex-spouse's should be considered in order to minimize the overall tax burden. Alimony is deductible by the payer and taxable to the recipient. Child support is neither deductible nor taxable. If the payer is in a high tax bracket and the recipient is in a low tax bracket, consideration should be given to increasing alimony payments and decreasing child support. In addition, the child dependency deductions may be better utilized by the spouse in the higher bracket. However, see Tax Planning: Deductions for Personal Exemptions.
Ask the IRS to relieve you of liability for amounts owed on a joint tax return where your spouse understated the taxable income, and the income was attributable to your spouse or the deductions were claimed by your spouse without your knowledge. IRC 6015
If you are planning to sell your home, consider selling your home while you are eligible to file a joint tax return. Provided that you and your spouse meet the ownership and use tests, you will be eligible to exclude up to $500,000 of gain. If you are divorced or you are not eligible to file a joint tax return, the maximum that you will be able to exclude is $250,000. IRC 121(b)(2)
Contribute up to $2,000 of alimony you receive to your IRA established by your ex-spouse. IRC 219(f)(1)
Rewrite your will when your divorce is final.
Rewrite your revocable living trust and modify provisions that relate to your ex- spouse.
Revoke any power of attorney that involves your ex-spouse.
Have your parents or other family members consider modifications to their estate plans that involve your ex-spouse.
Upon your legal separation or divorce, consider changing the beneficiary designations on all your IRA's, pension plans, insurance policies, and other documents requiring a beneficiary designation.
Change jointly owned property with rights of survivorship to tenants-in-common.
If your divorced or separated spouse works for a company with 20 or more employees which has employer-provided health insurance, you are also entitled to the coverage for 36 months following your divorce or legal separation. However, you may have to pay the monthly premiums. If you have children and you are a custodial parent who doesn't work, your ex-spouse can generally obtain dependent coverage under his or her employer's plan.
Notify insurance companies of the change in your marital status.
Consider purchasing or increasing disability insurance if, as a result of the divorce, you commence employment, or the level of your employment income increases.
Be sure your attorney invoices you separately for any income tax advice relating to the divorce as legal fees for divorce generally are not otherwise deductible.
