The process of divorce is both emotionally draining and fiscally costly, and although the majority of couples are thinking of property, custody, and alimony, not many of them think of how their divorce will impact their taxes.
Speaking in terms of ending a marriage in Florida, being aware of tax implications might prevent caveats, allowing for the reduction of tax liabilities and planning.
Divorce alters your status of filing, the transfer of property, child tax credits, among other issues. This guide explains what all Floridians need to know about divorce and taxes.
Top 7 Ways Divorce Impacts Your Taxes in Florida
1. Filing Status Changes After Divorce
You should know that filing status is the first and most immediate tax change following a divorce. When your divorce is finalized by December 31st, then you cannot file as Married Filing Jointly or Married Filing Separately in that year, but will instead file as Single or Head of Household, depending upon the situation.
To be considered as Head of Household, you should:
- Have spent over half the cost of maintaining a home in a year
- Have a dependent or qualifying child residing with you for more than half the year
Filing as Head of Household offers an improved tax rate and a larger standard deduction to many parents. This status is, however, frequently the subject of negotiation when divorce proceedings pass.
2. Alimony and Its Tax Implications
Florida courts often award alimony (spousal support) based on income disparity, length of marriage, and lifestyle. But how alimony is taxed depends on when the divorce occurred.
- For divorces finalized before January 1, 2019: The payor can deduct alimony payments from their taxable income, and the recipient must report the payments as taxable income.
- For divorces finalized on or after January 1, 2019, the Tax Cuts and Jobs Act (TCJA) reversed this rule. Now, alimony payments are no longer tax-deductible, and recipients don’t pay taxes on alimony received.
This shift significantly affects settlement strategies. For many, it changes how much alimony is affordable or reasonable.
3. Child-Related Tax Benefits
One of the most common tax issues in a Florida divorce involves dependency exemptions and child tax credits. Typically, only one parent can claim a child per tax year, unless parents alternate years or have multiple children and split the claims.
The Child Tax Credit offers up to $2,000 per child (subject to income limits), and the Earned Income Tax Credit may also apply to qualifying low- to moderate-income parents. It’s important for your divorce agreement to clearly state who claims the child and for how many years.
Over 25% of divorced or separated parents file tax returns with conflicting dependency claims, often resulting in processing delays and audits.
To avoid this, include IRS Form 8332 in your settlement if the custodial parent is releasing the claim to the noncustodial parent.
4. Property Division and Capital Gains
Florida follows equitable distribution laws, meaning marital property is divided fairly, but not always equally. Transferring property between spouses during divorce is usually not a taxable event. However, selling that property later may trigger capital gains taxes.
For example, if you receive the family home in the divorce and later sell it, you may qualify for the capital gains exclusion if:
- You owned the home for at least two years, and
- You lived in it as your primary residence for at least two of the past five years
Timing the transfer and sale carefully can help you maximize tax savings. Consulting a tax professional during property settlement is strongly advised.
5. Retirement Accounts and QDROs
Dividing retirement accounts such as 401(k)s or pensions requires a Qualified Domestic Relations Order (QDRO). A QDRO allows the tax-free transfer of retirement funds from one spouse to another as part of a divorce settlement.
However, if the receiving spouse withdraws money before age 59½ without rolling it into an IRA, it may trigger income taxes and a 10% early withdrawal penalty. Planning distributions wisely and using a QDRO properly can protect both parties from unnecessary tax burdens.
6. Homestead Exemption Impacts
Florida homeowners benefit from the Homestead Exemption, which reduces the taxable value of their primary residence. After a divorce, this exemption must be carefully reassessed.
- If both spouses were listed on the deed and lived in the home, only the remaining spouse typically keeps the exemption.
- The departing spouse loses the homestead benefit and must apply for a new exemption at their new residence, if applicable.
It’s also essential to update ownership and mailing records with your county’s property appraiser to avoid denial of exemption or higher property taxes.
7. Legal Separation and Taxes
Florida does not formally recognize legal separation. This means you are still considered married for tax purposes until the court officially issues a final judgment of dissolution of marriage. You can still file jointly, but if you are separated and living apart, you may explore the “Married Filing Separately” option to keep your finances distinct.
Final Thoughts
Divorce in Florida goes beyond emotional and legal complexities—it carries major tax consequences that can affect your financial stability for years to come. From alimony taxation and filing status to property division and homestead rules, the choices you make during divorce can impact your returns, liabilities, and eligibility for credits.
For guidance you can trust, the Affordable Divorce Centre offers cost-effective legal support to help you navigate Florida’s tax and divorce laws with confidence and peace of mind.
Frequently Asked Questions
1. Do you pay taxes on divorce settlement in Florida?
In most cases, property settlements are not taxed. However, selling assets later may trigger capital gains taxes. Always consult a tax professional during asset division.
2. How does divorce save taxes?
For some, divorce may offer tax advantages, like Head of Household status or separate liability. However, these benefits depend on custody, income, and timing.
3. How does divorce affect the homestead exemption in Florida?
Only the spouse who remains in the marital home typically retains the homestead exemption. The departing spouse must reapply for exemption elsewhere.
4. What if I am legally separated on my taxes in Florida?
Florida does not recognize legal separation. You are considered married for tax purposes until the court finalizes your divorce.
5. Can you divorce without splitting assets in Florida?
Yes, if both parties agree and the court deems it fair. However, you should still consider the long-term tax implications of keeping or forfeiting certain property.
