By Harry Prabandham · Updated September 28, 2026
Tax Planning
Tax Considerations in Divorce: Filing Status, Property, Alimony, and Retirement Accounts
Property transfers between divorcing spouses are generally tax-free, but basis carries over. Post-2018 alimony isn't deductible or taxable.
Tax Considerations in Divorce: Filing Status, Property, Alimony, and Retirement Accounts
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How are taxes handled in a divorce?
- Transfers of property between spouses, or former spouses when incident to divorce, generally trigger no gain or loss under Section 1041.
- The receiving spouse takes the transferring spouse's tax basis, so any built-in gain moves with the asset.
- Alimony under agreements executed after 2018 is neither deductible by the payer nor taxable to the recipient.
- Filing status, child-related credits, and retirement-account splits each follow their own rules.
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How are taxes handled in a divorce?
- Transfers of property between spouses, or former spouses when incident to divorce, generally trigger no gain or loss under Section 1041.
- The receiving spouse takes the transferring spouse's tax basis, so any built-in gain moves with the asset.
- Alimony under agreements executed after 2018 is neither deductible by the payer nor taxable to the recipient.
- Filing status, child-related credits, and retirement-account splits each follow their own rules.
Which filing status applies in the year of divorce?
- Marital status on December 31 generally controls filing status for the whole year.
- If the divorce is final by year-end, the options are single or, with a qualifying person, head of household.
- Spouses still married on December 31 may file jointly or separately, and joint filing makes both liable for the full tax.
- A spouse living apart for the last six months of the year who maintains a home for a child may be considered unmarried for head-of-household status.
Why does tax basis matter when dividing property?
- Two assets with the same market value can carry very different future tax bills because their basis differs.
- Stock, real estate, and business interests with low basis carry deferred capital gains to the receiving spouse.
- Rental property can carry depreciation that is taxed on a later sale, which a face-value split ignores.
- Vested and unvested stock options or RSUs create future ordinary income, so timing and who reports it matter.
How are retirement accounts divided?
- Employer plans such as 401(k)s and pensions are divided with a qualified domestic relations order (QDRO).
- QDRO distributions to a former spouse are exempt from the 10% early-distribution tax, but that exception does not apply to IRAs.
- IRAs are divided by a transfer incident to divorce under Section 408(d)(6), which is not a taxable distribution.
- Traditional and Roth balances of equal size are not equal after tax, since traditional withdrawals are taxed.
How do alimony and child support work for tax purposes?
- For divorce or separation instruments executed after December 31, 2018, alimony is not deductible or taxable.
- Older agreements keep the prior deductible/taxable treatment unless a later modification expressly adopts the new rule.
- Child support is never deductible by the payer or taxable to the recipient.
- The custodial parent can release the dependency claim for the child tax credit to the other parent using Form 8332.
What happens to the home sale exclusion?
- Each spouse may exclude up to $250,000 of gain on a main home if they meet the two-of-five-year ownership and use tests.
- A spouse who moves out can count the other spouse's use if that use is granted under the divorce or separation instrument.
- Ownership periods of a spouse who transferred the home under Section 1041 count toward the receiving spouse's ownership test.
- Timing a sale around these tests can change how much gain is excludable, so a CPA review before listing is useful.
Key takeaways
- Property division is generally tax-free, but the receiving spouse inherits the basis and future tax.
- Post-2018 alimony has no tax effect; older agreements may still follow the prior rules.
- Use a QDRO for employer plans and a transfer incident to divorce for IRAs.
- Divorce tax outcomes are fact-specific; confirm with a CPA and family-law attorney, since Rubric Advisors does not prepare tax returns or provide legal advice.
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