5 Things You Need to Know About Divorce Taxes in Arizona

Obtaining a divorce is a lengthy and emotionally draining process, and with masses of legal and financial information to digest, it’s understandable that you might not know all the ins and outs of divorce taxes. Both before and during marriage, individuals are taxed independently of their spouse; however, income and assets accrued by both members of a couple during their marriage can be subsequent to debate after divorce.

It’s important that you’re aware of all your options when going through a divorce, including knowing everything there is to know about taxes post-divorce. This is where legal professionals come in, and there is no shortage of them in Arizona. Below, you’ll find 5 things you need to know about divorce taxes in Arizona and how Genesis Family Law and Divorce Lawyers can support you through your divorce in Arizona.

1. Income received after finalization belongs to the individual who earned it

One of the biggest financial disputes during the divorce process is over marital assets’, which are monetary and property gains accumulated during the marriage. Future income, which is income accrued after one or both members of a couple file for divorce, is often disputed as a marital asset in the divorce court. So, one former spouse is entitled to make a financial claim against income or assets accumulated by the other in their separated future.

However, when it comes to tax, the individual who receives independent income, such as wages or money made from leasing a property, is responsible for paying tax on it. In the case of spousal maintenance, the same applies, but child maintenance payments are non-taxable in Arizona, so you should leave the latter off your tax returns following an established child support settlement after divorce. Essentially, divorced individuals are taxed the same as they were prior to marriage: independently and based solely on their own income.

2. Post-2019, alimony is not taxable or tax-deductible in Arizona

In 2017, alimony was made taxable in Arizona and subsequently treated similarly to other monetary income, like wages. The recipient of spousal maintenance was responsible for paying any tax on their alimony, and this tax was calculated depending on how much the recipient got. When recipients filled out their tax returns, alimony payments were mandated to be added as income, and similarly deducted from the income of the divorcee paying the alimony to their ex-spouse.

However, as of January 1, 2019, alimony is no longer taxable for the recipient, nor tax-deductible for the giver. This change in divorce tax law reversed the established system of spousal maintenance taxation established two years prior, meaning that those mandated to pay are no longer eligible for a tax deduction. The dependent divorcee’ receiving the payments no longer has to add alimony to their tax return, meaning it is still classed as part of the giver’s overall income prior to payment.

3. Tax deductions depend on the individual, not the partnership

Divorcees are independently entitled to tax deductions regardless of their previous married status. For instance, if one ex-spouse has primary custody of the children and receives child maintenance payments, they are not obliged to add this income to their tax returns in Arizona because it is taxed at the source: the income brought in by their ex-partner. Similarly, if one ex-spouse makes regular donations to charitable organizations, they alone are entitled to those tax deductions even if they were donating during the marriage as well.

In Arizona, medical expenses are 100% tax-deductible, so ex-spouses are required to deal with deductions such as those as individuals, regardless of how they dealt with them while they were married. Any joint assets can be disputed and assigned in the divorce court, with subsequent taxation and deductions dependent on those decisions. Divorce requires both individuals to fully separate themselves from their partnership and take independent financial responsibility.

4. Typically, there is no Capital Gains Tax to be paid on property

An individual becomes liable for Capital Gains Tax (CGT) when a property that they are selling has increased in value since they bought it. The amount gained between obtainment and sale is taxable because it is income accrued. Property is considered a marital asset, so it must be transferred between the couple before the end of the tax year.

If community property is agreeably split between the two divorcing parties, there is no CGT to be paid because the situation is deemed no loss, no gain’. CGT is most commonly applied to properties that are sold undervalue, allowing the buyer to benefit from getting a high-price asset for less than it is worth. However, in the case of divorce, CGT is typically not necessary, so long as the couple finalize their divorce and divide assets before the end of the tax year.

5. Your marital status must be reflected in your tax return

If you are going through a divorce in Arizona and aren’t sure of how to declare your marital status on your tax return, it depends on the date that you are filing. If your divorce has not been finalized by December 31, you are still legally married, so you must either file independently as such, or file jointly with your spouse. You should always protect yourself when filing, so consider which option is the most beneficial to your finances, then file independently once your divorce is finalized.

Divorce and Taxes Attorney in Arizona

Located in Arizona, Genesis Family Law and Divorce Lawyers is a law firm consisting of experienced attorneys and talented legal professionals, all of whom can offer you support, representation and expert advice on how to navigate a divorce. With over 20 years in business, Genesis Family Law and Divorce Lawyers have successfully guided clients through difficult divorces, covering all aspects of the proceedings, including how to handle taxes as a divorcee.

To get a better idea of exactly how Genesis Family Law and Divorce Lawyers can help you, get in touch today and schedule a one-hour consultation with an experienced professional. Each case is treated with utmost attention and the aim of offering you optimal support from when you file for divorce to when it is finalized.