Taxes after Divorce: What Changes and How to Prepare

Few topics inspire more anxiety than filing taxes, especially after a major life transition like divorce. The first year you file on your own can feel unfamiliar, but it can quickly get easier once you understand what’s changed. Here are answers to some of the most common questions to help you start this tax season with confidence.

Choosing the right tax preparer

Hiring a CPA may cost more than using online software, but the peace of mind can be well worth it. Many people stick with the same CPA in their first year post-divorce since that person already knows their household’s history. If you trust your CPA and they are comfortable working with you and your former spouse separately, we believe there is no problem with continuing to work with them indefinitely.

If you decide to find a new tax provider, make sure you give yourself as much time as possible before the new year begins. Most tax professionals will not take new clients in the busiest months before tax deadlines. Many will want to see your most recent return to understand the complexity and provide a quote. You may want your attorney and Corient Wealth Advisor to help explain how your finances will change in the year following your divorce.

How your filing status changes after divorce

Your marital status on December 31 determines your tax filing status for the entire year. If your divorce was finalized anytime in 2025, your 2025 return (filed in 2026) will be as a single taxpayer.

The two filing options for non-married individuals are single or head of household.

• Single: Unmarried individuals who do not support eligible dependents.
• Head of household: Unmarried individuals who pay more than half of household expenses, with either a qualified child or relative living with you for more than half of the tax year. A common example is a divorced parent providing majority of the financial resources for their dependent child’s care.

A qualified child must be younger than 19 or younger than 24 if a full-time student. A qualifying relative is someone who has gross income under a specific threshold. Because of the expenses associated with having a dependent, “head of household” provides a larger standard deduction and wider tax brackets. If you are unsure which status is right for you, be sure to consult a tax professional to get the appropriate  guidance for your personal circumstances.

Does divorce create a tax bill?

A divorce itself usually doesn’t trigger a tax bill. Transfers of marital assets are typically tax-free. But liquidating assets for cash can create taxable events. This is one area where coordination among your CPA, attorney, and Corient Wealth Advisor can prevent surprises.

If you had joint investment assets with your former spouse, there is often a primary account holder whose social security number is listed first on the account. The primary account holder will need to report that income on their return. Be sure to consult your divorce agreement if there is any uncertainty on joint assets.

Child support is not taxable to the recipient, nor is it deductible for the paying parent. Similarly, spousal support is generally not taxable to the recipient, nor tax deductible for the payer.

Do you need to make quarterly tax payments?

Estimated tax payments are payments made directly to the government on income not automatically subject to withholding, such as self-employment earnings, interest, dividends or capital gains. These quarterly payments help you stay current with the IRS and avoid a large balance due or potential underpayment penalties at tax time.

If you miss or underpay these installments, the IRS can assess penalties. To avoid this, you can calculate your safe harbor payment, which ensures you’ve paid enough throughout the year. In general, you’ll meet the safe harbor rule if you pay either 90% of the tax owed for the current year or 110% of the prior year’s total tax. Meeting one of these thresholds shields you from penalties, even if you owe more when you file.

If you’ve made estimated payments in the past, it often makes sense to continue doing so in the first year after your divorce. Your income sources or withholdings may have changed, and staying proactive helps you avoid surprises. A CPA and  your Corient Wealth Advisor can also help recalculate your quarterly amounts based on your new income level and filing status.

How your new income affects your taxes

It is important to have a basic understanding of the different tax rates your income could be subject to. There are two main types of tax, each with different tax treatments:

• Ordinary income: This includes wage income (salary, tips, and bonuses), retirement account withdrawals, rent, royalties, unqualified dividends and more. These are taxed across various “ordinary” income brackets.
• Capital gains: This includes profits (money made above the initial purchase price) on assets that are “capital” in nature, including stocks, bonds, businesses, partnership shares, cars and real estate. These are taxed at different (typically lower) rates than ordinary income.

Adding income sources together gives you your adjusted gross income, to which you apply the appropriate deductions to arrive at your taxable income. There are two ways of applying your deductions:

• Standard deduction: This is an amount set each year by the IRS. It differs depending on your filing status and is the amount you can deduct from your taxable income if you do not itemize deductions on your return.
• Itemized deductions: Certain qualifying expenses may be bundled together, and if they exceed the standard deduction, you may itemize them to reduce taxable income even further. Examples include mortgage interest, property taxes, qualifying medical expenses, donations to charity and more.

How investment and retirement accounts are taxed

Long-term retirement savings fall into three tax categories:

• Taxable brokerage accounts: These investment accounts are typically held individually, jointly or in trust. Any interest and dividends that the underlying investments generate are taxable and must be reported. Sales of assets that made more than the purchase price are subject to capital gains tax, and sales of assets that lost money from the initial purchase price bank capital losses that can be used to offset capital gains.
• Tax deferred retirement accounts: These include traditional IRAs, 401(k)s, 403(b)s, SEP IRAs, SIMPLE IRAs and many more. Contributions are tax deductible, and interest and dividends are tax-deferred, so they do not need to be reported annually. Withdrawing from these accounts typically incurs taxes at ordinary income rates on the full distribution amount which can vastly reduce the net amount you receive. Please note, some states tax retirement account distributions, while others do not.
• Roth retirement accounts: These include Roth IRAs or Roth 401(k)/403(b) accounts. Contributions are not tax deductible, but future earnings and growth are entirely free of tax. If you take money out of this account, you will have a Form 1099-R, but none of the distribution is taxable.

While it is often most desirable to receive Roth assets in the divorce settlement, it is common to receive a mix of Roth, taxable, and tax deferred accounts.

Early withdrawal penalties need to be considered. Retirement accounts impose 10% early withdrawal penalties before age 59½ unless you meet one of the IRS-defined exceptions.

When splitting retirement plans, a qualified domestic relations order (QDRO) is a legal document that is used to facilitate the split. QDRO divisions are exempt from potential tax liabilities and the 10% early withdrawal penalty. IRAs do not require QDROs, as they are not qualified retirement plans, and are not exempt from 10% early withdrawal penalties.

What to gather before filing

Some items that might be helpful as you prepare your tax return include your prior year return, your martial settlement agreement or divorce decree, Form W2 and Form 1099 documents. If a CPA prepares your return, they might have a checklist of important documents to gather. Some of the most common items needed are:

Form W-2: If you are currently working, this shows employer income and withholdings.

Form 1099: There are many types of 1099s. They can come from financial institutions such as banks or brokerage accounts, retirement plan rollovers, contract work and more. If you had a QDRO prepared to split a retirement plan as part of the divorce, there is likely a 1099-R associated with the rollover. It can be helpful to review your balance sheet with a financial advisor to determine all sources of taxable income and ensure the tax forms are accounted for. Please note, if you closed accounts, these documents might not show up online. If you think you are missing a document, call the institution and inquire. While 1099s become available in February, it’s generally best to wait until March as the issuer usually posts corrections to earlier documents.

Loan information: Examples include mortgage interest, student loans, loans on your investment income, and home equity loans.

Property taxes: May be deductible if you itemize your return, as part of the state and local tax (SALT) deduction. Beginning in 2025, the SALT deduction limit increases to $40,000 for most filers ($20,000 if married filing separately), with the benefit gradually phasing out for higher-income taxpayers. If your income exceeds the phase-out threshold, your deduction may remain capped at $10,000.

Medical expenses: Can be deductible above a threshold if you itemize your return.

Charitable gifting expenses: Cash or in-kind donations can be deductible if you itemize your return.

Other income sources: Pension, Social Security, self-employment, rental income and more need to be reported as well.

Smart ways to double-check your tax return

Before submitting your return, it’s worth taking a few extra minutes to ensure it reflects your current circumstances. The first year filing after divorce often brings new complexity, making accuracy especially important. Here are some things to watch out for:

Confirm dependent tax credit: If you have children, confirm via your divorce decree or marital settlement agreement which parent gets to claim the dependent tax credit. Is there a tax-loss carryforward to the current year? If from a joint source, consult your agreement on how this is split for the current tax year.

Consider all your accounts: If you have opened new accounts, ensure these are accounted for in your tax documents. If your old joint accounts are still open, ensure the correct spouse is reporting the income.

Update bank information: If you have opened new accounts post-divorce, you also want to ensure the proper bank account is set up to receive potential refunds or make payments.

Max out contributions: If appropriate, consider making IRA contributions for the previous year. Taxpayers have until April 15 to make prior year contributions. Make sure to include Health Savings Account and 529 Plan contributions. Note: child and spousal support is not considered earned income.

Ensure liquidity: Be cognizant of how much cash you have on hand around tax time. With changes to your taxable situation post-divorce, it is possible you will owe the IRS money. It is ideal to have cash available to make these payments, so you are not forced to sell assets in short order. If you need to make cash available, consult with your Corient Wealth Advisor to determine the appropriate  asset to sell.

Setting yourself up for tax success next year

Once this year’s return is filed, a few simple habits can make next tax season far less stressful. Clear communication, good recordkeeping and smart security practices will help you stay organized and avoid surprises.

Communicate: If you have major transactions during the year, it is best to consult with a CPA to avoid underpayment penalties. To avoid penalties, you may be required to make estimated payments each quarter.

Stay organized: Keep adequate records of tax statements and receipts. Your net worth statement is helpful to track your financial accounts and debts. It is best to keep key tax documents for at least three years after filing before deleting or shredding them.

Stay safe: Discard old information by shredding it. Never email sensitive information without security. Sensitive information includes financial account information or personal identification information, such as social security numbers and dates of birth.

It is completely normal to find taxes confusing, especially after a recent divorce. Whether you choose to prepare your taxes yourself or hire a professional, having a basic understanding of the process can make things much more efficient. Additionally, you may find this knowledge empowering as you embark on your next chapter.

What’s one small step you can take today to make progress on your tax filing?

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