Divorce and Taxes

Taxes On Child Support Payments

When you are filing your taxes you may wonder if the monies you pay for child support are tax deductible. The standard answer is that child support payments are not deductible, unless your child support order was made before May 1, 1997. If you receive child support payments you do not have to pay taxes on any of the payments, unless you are receiving money from an order made before May 1, 1997.

Deductibles And Taxes On Spousal Support

The spouse who pays the spousal support can deduct their support payments from their taxes. Similarly, the person who receives the spousal support payments must pay the taxes on the money.

Figuring Tax Deductions Associated With Divorce And Family Legal Fees

Figuring out taxes associated with divorce legal fees can be quite complicated and you might want to get with your accountant to figure out what is deductible and what is not. In general, your legal expenses cannot be deducted; however there are some circumstances when you can deduct them. Legal fees are often deductible if they are associated with obtaining child support, increasing the amount of child support your receive, to enforce an existing order of child support, obtaining spousal support, or resisting a payor spouse’s attempt to reduce child or spousal support.

Claiming the Canada Child Tax Benefit

The person who is mainly responsible for the care and upbringing of a child is able to claim the Canada Child Tax Benefit. In cases of shared custody, each parent is normally entitled to receive the benefit for 6 months of the year.

Claiming the Equivalent to Spouse Credit

You may be able to claim an equivalent to spouse credit for one of your children, if you were responsible for supporting the child.

Paying Taxes On A Division Of Property

An equalization payment generally has no effect on your taxes. However, property transfers between spouses to settle the division of property might, and these should be taken into account when determining how the property is to be divided. You often have the choice incurring a tax on capital gains right away or deferring the tax. As well, your separation agreement should be drafted to insure that there’s no income attribution between you and your spouse.

Don’t Pay More Taxes When You’re Separated

When you are separated there are several steps you can take so that you don’t have to pay unnecessary taxes. If your home is now transferred to just one spouse or the other, be sure to list it as the principal residence. Also make sure that you take full advantage of the Canada Child Tax Benefit. If you are separated you are also able to claim the “equivalent to spouse” credit on your tax return.

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