A calculator and tax forms beside two wedding rings

Updated October 16, 2026

Divorce changes your filing status, who claims the children, how alimony is taxed, and the after-tax value of the property you receive. Wise & Associates in Louisville and Wise Law, the Nashville office of Wise & Associates, negotiate settlements with those consequences in mind and recommend that clients confirm tax questions with a CPA.

What Is Your Filing Status in the Year You Divorce?

Your federal filing status depends on whether you are married on December 31. If your decree is entered by December 31, you cannot file a joint return for that year and will generally file as single or, if you qualify, head of household. If the divorce is still pending on December 31, you are still married for that year and can file jointly or separately.

Head of household status generally requires that you be unmarried or considered unmarried on the last day of the year, pay more than half the cost of keeping up your home, and have a qualifying person, such as your child, live with you for more than half the year.

Who Claims the Children?

For federal tax purposes, the custodial parent, generally the parent the child lived with for more nights during the year, is entitled to claim the child. The custodial parent can release the claim to the other parent by signing IRS Form 8332. A settlement can set which parent claims each child in which years, and the agreement should require the Form 8332 to be signed when needed.

Is Alimony Taxable?

For divorce or separation agreements executed after December 31, 2018, alimony is not deductible by the paying spouse and is not taxable income to the receiving spouse for federal tax purposes. Agreements executed before 2019 keep the old rules unless they are modified and the modification expressly adopts the new rule. Child support is never deductible or taxable.

Tennessee has no state income tax on wages. Kentucky residents should ask a CPA how maintenance is treated on their Kentucky return.

Are Property Transfers Between Spouses Taxed?

Generally no. Transfers between spouses, or between former spouses when incident to the divorce, are not taxable events under federal law. But the spouse who receives the property also takes over its tax basis. A $200,000 brokerage account with a low basis is worth less after tax than $200,000 in cash, so equal dollar values are not always equal.

How Are Retirement Accounts Divided?

  • 401(k)s and pensions are divided with a qualified domestic relations order (QDRO). A distribution to a former spouse under a QDRO is taxable income unless it is rolled over, but it is not subject to the 10 percent early-withdrawal penalty.
  • IRAs are divided by a transfer incident to the divorce, which is not taxable when done correctly. Cashing out instead can trigger tax and penalties.

What If You Sell the Marital Home?

Each spouse can generally exclude up to $250,000 of gain on the sale of a main home, or $500,000 on a joint return, if the ownership and use tests are met for two of the five years before the sale. A spouse who moves out can generally still count the time the other spouse lives in the home under the divorce decree or agreement. Timing the sale around the divorce can change the result.

What Are the Tax Issues in a Business Buyout?

When one spouse keeps a business and buys out the other, how the buyout is structured matters. A transfer of the ownership interest from one spouse to the other is generally not taxable, but the business redeeming the interest can be treated differently. Payments over time, the tax basis of the interest, and any built-in gain should be reviewed with a CPA before the agreement is signed. See protecting your business in a divorce.

Talk to a CPA

This article is general information. Wise & Associates and Wise Law are law firms, not tax advisors. Before you sign a settlement, ask a CPA to review its tax effects, especially for retirement accounts, the home, and any business.

How Wise & Associates and Wise Law Handle the Tax Side of Divorce

Frequently Asked Questions

Can we file a joint return in the year we divorce?

Only if you are still married on December 31. If the decree is entered by December 31, you cannot file jointly for that year.

Is alimony deductible in Kentucky or Tennessee?

For federal tax purposes, alimony under an agreement executed after December 31, 2018 is not deductible by the payer and is not income to the recipient. Ask a CPA about Kentucky state treatment.

Who claims the children after a divorce?

Generally the custodial parent, who can release the claim to the other parent with IRS Form 8332. A settlement can allocate the claim by child or by year.

Do I pay tax when I receive property in the divorce?

Generally no, but you take over the property's tax basis, so you may owe tax when you later sell it.

Is a QDRO distribution taxable?

It is taxable income unless rolled over, but a distribution to a former spouse under a QDRO is not subject to the 10 percent early-withdrawal penalty.

Related Reading

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Wise & Associates, Louisville: 303 Middletown Park Pl, Suite G, Louisville, KY 40243 · (502) 618-0000 · Book a free phone consultation

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Wise Law is the Nashville office of Wise & Associates, Louisville, Kentucky.

Wise & Associates in Louisville and Wise Law, the Nashville office of Wise & Associates, negotiate divorce settlements with their tax consequences in mind.

Attorney advertising. This article provides general information, not legal advice. Reading it does not create an attorney-client relationship. Prior results do not guarantee a similar outcome.