Divorce has many consequences, including some potentially dramatic changes to your tax life.

Your filing status likely will go, at least for a while, to single or, depending upon custody arrangements, head of household. Status change alone will affect your tax rates and standard deduction amounts.

Some filing issues could show up before the divorce decree is issued. In many cases, a couple on the outs decides to file separate returns. Talk with not only your divorce attorney, but also your financial and tax adviser before making this change. Couples who file jointly usually enjoy a lower tax liability than do husbands and wives who send in their 1040s separately.

If you are going through a divorce and considering changing your filing method from jointly to separately, run the numbers using each method to see which will be the most advantageous from the tax standpoint.

Keep in mind, too, that the date of your divorce ultimately determines your filing status. If you are divorced on December 30, even though you were married for most of the year, you no longer can file as a married couple. If your divorce is amicable, look at whether staying married a bit longer will give you a better tax result.

Dependent decisions — Marital choices about children are never easy. They get harder during and after a divorce, especially when taxes are involved.

One of the first questions divorcing couples ask is who will claim the children as dependents? The answer could mean a lot tax-wise, since each dependent claim gives the filing parent an exemption amount to help lower his or her tax bill. Some other tax breaks, such as the child dependent care credit, also are limited to the parent who
gets to claim the children as dependents.

This tax exemption for a dependent child usually goes to the parent with primary physical custody, regardless of how much child support the other parent pays. Even if the child spends almost as much time with the noncustodial parent, the dependency exemption cannot be split.

As custodial parent, you can agree to let the other parent use the exemption by completing Form 8332 or a similar statement. In friendly divorces, it’s not uncommon for ex-spouses to “trade” the child dependency exemption from tax year to tax year, so they can each periodically claim child-related tax breaks. However, before surrendering a child’s exemption and associated tax breaks, for one or a series of tax years, talk to your
accountant as well as your lawyer.

If a divorced couple has several kids, they also could choose to split the dependent exemptions. Again, talk to your tax professional to make sure such a move won’t deprive you of tax savings. Usually, it is wiser for the party who benefits the most from the exemptions to claim all of them and consider compensating the other spouse.

Alimony tax costs, benefits — Be careful, though, if that compensation is alimony. A recipient of spousal support must declare that money as income on his or her tax return. The paying spouse, on the other hand, is able to deduct the alimony payments.

Both you and your ex should keep complete and accurate records to document payments and receipts. The IRS can track unreported amounts because for the paying spouse to deduct the support, he or she must include on his or her tax return the former spouse’s Social Security number.

Child support, however, is never tax deductible. Neither does it count as income to the parent receiving the payments on behalf of the child or to the child.

Assessing assets — When dividing assets, don’t just assess the sentimental or financial value of the property. Take a close look at any tax implications. An asset’s tax cost could make a big difference as to whether you want it as part of a property settlement. And an equal dollar division of marital assets could end up costing you substantially more depending upon your financial situation. This tax exemption for a dependent child usually goes to the parent with primary physical custody, regardless of how much child support the other parent pays.

For example, you and your ex decide to split a tax-deferred retirement account and a stock fund, each worth $100,000. You take the retirement fund and your former spouse takes the stock account. When you begin taking distributions from the retirement account, you will pay taxes at the ordinary rate. Your spouse, on the other hand, likely has been paying lower rates on that account’s capital gains distributions and ultimately can sell the entire fund and face potentially much lower long-term capital gains tax rates.

Don’t forget about your home, which is usually a couple’s largest asset. If you sell it as a couple, in most cases there is no tax on up to $500,000 in profit. But a single seller only gets half that exclusion amount. Even if you both retain joint ownership, each must live in the property as a principal residence for two of the five years before the sale. Depending upon when you finally dispose of the property, you could lose your maximum joint sale tax break. Selling it as a couple before your divorce is final might be a better tax move.

Other divorce costs — You can’t write off legal fees and court costs associated with your divorce, but if you itemize, you might be able to deduct the cost of certain advice in connection with the process. If you received guidance from appraisers, actuaries, and accountants in determining your divorce-related tax bill or help in obtaining alimony,
those payments can be claimed as miscellaneous deductions, subject to the 2 percent of adjusted gross income limit, on Schedule A.

Name change details — Finally, if you took your husband’s surname during marriage and now are again using your maiden name, let the Social Security Administration know of the change. When you file your return, if your name and tax ID don’t match, tax break claims could be denied. If you took your husband’s surname during marriage and now are again using your maiden name, let the Social Security Administration know of the change.