Your lawyer handled the house.
Your lawyer handled the kids.
Your lawyer did not handle Form 8332.
That’s where we come in.
Welcome. We’re glad to serve you.
A divorce changes almost every line of a tax return, and the tax code is not sentimental about it. Your filing status is decided by one date. Alimony stopped being deductible in 2019 and nobody told the people still paying it. The child goes on one return, not two, and the rule for which one is not “whoever the decree says.” The house and the 401(k) can move between you without tax, but only if the paperwork is right. Below is the list.
This page is about income tax. It is not legal advice about your divorce, and your attorney’s decree controls what you agreed to. What it doesn’t control is how the IRS reads it, which is the part people find out about in April.
If your divorce decree or legal separation is final on or before December 31, 2026, you are unmarried for all of 2026. You file single, or head of household if you qualify. If the decree is dated January 2, 2027, you were married for all of 2026 and you file jointly or married filing separately, whether or not you’ve spoken since March.
There is one escape for the still-married. If you lived apart from your spouse for the last six months of the year, paid more than half the cost of keeping up your home, and a child lived with you more than half the year, the IRS treats you as unmarried and you can file as head of household. That is usually worth several thousand dollars over married filing separately, which is the worst status in the code: no earned income credit, no education credits, half the standard deduction, and the senior and student-loan breaks mostly gone.
Filing jointly for the last year is often the best number for both of you combined. It is also a joint promise to the IRS that everything on the return is right, and that promise outlives the marriage. More on that below.
We couldn’t agree on the couch. Now we’re supposed to agree on a tax return.
↑ Back to topFor any divorce or separation agreement signed after December 31, 2018, alimony is not deductible by the person paying it and is not income to the person receiving it. The 2017 tax act made that change, and the 2025 act made it permanent. The money is simply after-tax money moving from one household to another.
Agreements signed in 2018 or earlier keep the old rules: deductible for the payer, taxable to the recipient. That grandfathering survives a later modification unless the modification says in so many words that the new rules apply. If you are modifying an old agreement, that one sentence is worth a conversation with us before anyone signs.
Child support has never been deductible or taxable and still isn’t. Payments that drop when a child turns 18 or finishes school are child support no matter what the decree calls them.
What this changes in practice: a higher-earning spouse paying $2,000 a month used to get back roughly a third of it in tax. Now the full $24,000 comes out of after-tax income. Settlements negotiated by people who remember the old rule tend to be the wrong size.
↑ Back to topThe parent the child lived with for more nights during the year is the custodial parent, and that parent claims the child. Not the decree. Not the parent paying support. The parent with more nights. If it is exactly even, the parent with the higher adjusted gross income wins the tie.
The custodial parent can let the other parent claim the child by signing Form 8332, and many decrees require it in alternating years. Here is the part the decree usually gets wrong: Form 8332 hands over the child tax credit ($2,200 for 2026) and the credit for other dependents. It does not hand over head-of-household status, the earned income credit, or the child and dependent care credit. Those stay with the parent the child lives with, every year, no matter what anyone signed.
So a decree that says “Dad claims the child in even years” means Dad gets the $2,200 credit in even years. Mom still files head of household and still gets the day-camp credit, because the child still lives with her. Both parents can be right at the same time, which surprises people.
The form has to be attached to the noncustodial parent’s return. A copy of the decree does not substitute for it. If two returns claim the same child, the IRS processes the first one and sends the second one a letter.
↑ Back to topProperty that moves between spouses because of a divorce is not a sale. No gain, no loss, no tax, whether it is the house, the brokerage account, or the truck. The person who receives it takes it with the same basis the couple had. That is the catch. The spouse who keeps a house bought for $300,000 that is now worth $800,000 is also keeping $500,000 of gain, and the spouse who took the $500,000 bank account took no gain at all. Equal on the settlement sheet; not equal after tax.
When the house is sold later, the $250,000 home-sale exclusion applies to the owner at that point, and the years the former spouse lived there under the decree count toward the two-year residence test. If the house is sold during the divorce while you both still own it, each of you can use your own $250,000 exclusion. Timing the sale before or after the decree can be the difference between $500,000 excluded and $250,000.
Brokerage accounts carry the same rule: the receiving spouse inherits the purchase dates and the cost, so ask for the lots, not just the balance.
↑ Back to topA 401(k), 403(b) or pension can be divided only with a QDRO, a separate court order the plan administrator has to accept. Done right, the money moves to the former spouse’s own account with no tax and no penalty. Done wrong, by cashing out and writing a check, it is a taxable distribution to the employee plus a 10% penalty if under 59½. That mistake is common and it is permanent.
One useful wrinkle: the spouse who receives money under a QDRO from a workplace plan (not an IRA) can take some of it in cash directly from the plan without the 10% penalty, whatever their age. It is still taxable, but for someone who needs a down payment it is the cheapest cash in the settlement. Once it is rolled into an IRA, that door closes.
IRAs don’t need a QDRO. The decree itself is enough, and the split is done as a trustee-to-trustee transfer. Roth IRAs come with the five-year clock of the original owner. Colorado PERA has its own order form and its own rules, and the retirement office will tell you what it needs.
↑ Back to topEvery joint return you signed is a joint debt. If the IRS finds a problem on the 2024 return in 2028, it can collect all of it from either of you, and a decree that says “he pays any back taxes” binds him to you, not to the IRS. Relief exists, in the form of innocent spouse and separation of liability claims, and it is real but slow. The better protection is to review the last three years of joint returns before the decree is final, while you still have access to the records.
Two practical items for the year of the divorce. First, file a new W-4 with your employer; withholding set for a married couple with two children will be badly wrong for a single person with none. Second, if you made joint estimated payments, decide in writing who gets credit for them, because the IRS will otherwise split them by each spouse’s share of the tax, which is rarely what either of you expected.
Legal fees for the divorce are not deductible, including the part of the bill for tax advice. That deduction went away with the 2017 act and did not come back.
↑ Back to topTwo children, ages 9 and 12, who live with Ann 240 nights a year. Bob earns $140,000 and pays Ann $2,000 a month in maintenance and $1,500 in child support. The decree says Bob claims the 12-year-old every year and Ann claims the 9-year-old.
Filing status. Both are unmarried for 2026. Ann files head of household (the children live with her). Bob files single, even in a year he claims a child, because the child doesn’t live with him.
Alimony. The $24,000 Bob paid is not deductible and is not income to Ann. The $18,000 of child support is nothing to either of them.
The children. Ann signs Form 8332 for the 12-year-old. Bob attaches it and claims the $2,200 child tax credit for that child. Ann claims the $2,200 for the 9-year-old, plus head-of-household status and the dependent care credit for both children’s after-school program, because those don’t transfer.
The house. Ann keeps the house, bought in 2012 for $320,000, now worth $790,000. No tax now. When she sells it in 2029 she will have $470,000 of gain and a $250,000 exclusion. If they had sold it in 2026 before the decree, the exclusion would have been $500,000 and the gain fully covered. That one timing decision is worth about $33,000 in federal tax at the 15% rate, before Colorado’s 4.40%.
Colorado starts from your federal taxable income and uses your federal filing status, so everything above flows through. Alimony under a post-2018 agreement is invisible to Colorado too. The Colorado child tax credit and the Colorado child care expenses credit follow the federal child: whoever claims the child federally for that credit claims the Colorado version. Colorado PERA benefits are divided by a domestic relations order filed with PERA, and the retirement office, not the plan rules above, says what it has to look like.
One Colorado-specific point for the year you move: if one of you leaves the state, that person files a part-year return and Colorado taxes only the income earned while a resident plus Colorado-source income after. The decree doesn’t change where you live; your driver’s license, your lease and your days do.
↑ Back to topOnly if your son lives with you more than half the year. The decree, and a signed Form 8332, give you the child tax credit for him. Head of household, the earned income credit and the dependent care credit belong to the parent he lives with, regardless of what the decree says.
Yes. Agreements signed before 2019 keep the old rules: deductible to you, taxable to your former spouse. If the agreement is ever modified, keep it that way unless the modification expressly says the new rules apply.
No. You can file married filing separately, which is usually expensive. If a child lived with you and you lived apart from your spouse for the last six months of the year, you may qualify to file as head of household instead, which is much better.
If a QDRO moves money to you from a workplace plan, you can take cash directly from the plan without the 10% penalty at any age. It is still taxable income. Once you roll it into an IRA, that exception is gone, so take any cash you need before the rollover, not after.
For the Tax Shop desk · forms, code sections, and the things that get missed
Most of the money in a divorce is decided before the tax return is ever opened, which is why the right time to call us is while the settlement is still being negotiated. A house with $500,000 of gain and a bank account with $500,000 in it are not the same $500,000. A decree that gives Dad the exemption but forgets Form 8332 gives him a letter from the IRS instead. The fixes are cheap before the judge signs and expensive after.
Call 303-734-1040 or stop by the office in Lone Tree. We’ve been reading the footnotes for Douglas County and the Denver area since 1969.
Figures reflect the 2026 tax year as currently published and are rounded for readability. Items marked (verify) are to be confirmed against IRS or Colorado DOR sources before the figures freeze in December. Last updated October 15, 2026.
