Many married couples in Pennsylvania file joint federal and state tax returns. Both spouses share equally in tax deductions and credits, such as claiming the children as dependents and deducting the interest from a mortgage on the family home. After a divorce, some of those tax savings often disappear for one or both spouses, depending on the circumstances.
Many couples assume that because they were still married for part of a year, they may file their tax returns jointly. However, if a couple was divorced by Dec. 31 of any given year, the parties are considered to have not been married for the whole year. For tax filing purposes, it does not matter whether the divorce was final on Jan. 1 or Dec. 31 of the same year.
If one party keeps the marital home and continues to make mortgage payments, he or she can claim the mortgage interest on the home. If the party not keeping the house was "bought out" by the other party, he or she may be required to pay taxes on that amount. If the house is sold, each party is responsible for any taxes due on his or her portion of the proceeds.
Other popular tax considerations in a Pennsylvania divorce are claiming the children as dependents and the fact that alimony is considered income -- and is, therefore, taxable -- but child support is not. When negotiating a divorce settlement, understanding the tax implications could help the parties make decisions regarding the division of certain assets and any payments due from one party to the other. After considering all of the pros and cons, what may have seemed like the right choice may not be in the party's best interest.
Source: Reuters, "What's even worse than a divorce? For some, it's the taxes", Lauren Young, April 10, 2014