Tax planning and preparation for divorced or divorcing individuals is essential in minimizing tax liability for the 2025 tax return filing. Financial changes due to a divorce can significantly impact tax obligations. Navigating state and federal income tax return rules and understanding itemizing deductions can help minimize liabilities. You will need to speak with your tax professional for tax advice specific to your situation. However, below is a general guide that explores some of the more common tax planning areas and issues for divorced or divorcing individuals in Nebraska. Thoughtful preparation helps manage post-divorce income, avoid surprises, and ensure compliance with the rules and the due dates for filing returns. Keep in mind that the thoughts below are general rules and what is more common. There may be other options and exceptions depending on your specific situation.
Tax Planning for Divorced Individuals in 2025
Filing Status After Divorce – Can I File Married Filing Jointly?
Many married couples receive an overall reduction in their taxable income by being able to file as married, filing jointly. What if your divorce is finalized but you were married for most of the year? Can you still file married filing jointly to receive an overall tax benefit?
Generally, the answer is no. Unless you were still married on December 31, 2025, you generally cannot file your taxes as married, even if both spouses agree to it.
Depending on your situation, if the parties file Married, Filing Separately while the divorce is pending, the Court can include any refund received as a marital asset and any tax debt due as a marital debt and divide these between the parties in the overall division of assets/debts. Thus, there is sometimes an incentive for both parties to file married, filing jointly to reduce the overall tax liability or to receive the highest possible refund. It is not uncommon for divorces that would otherwise finalize near the end of the year to wait until the start of the new year to finalize their divorce in order to have married, filing jointly tax benefits for one more year.
Filing Status After Divorce – Can I Claim Head of Household?
After the divorce is finalized, your two main tax filing status options generally are:
- Single: If the taxpayer does not qualify for any special status.
- Head of Household: Available if the individual supports a dependent and pays more than half the household expenses.
Head of Household status generally provides better tax rates and higher standard deductions compared to Single. To qualify as Head of Household, the child or dependent must live with the taxpayer for more than half the year. Filing as Single can increase tax liability, so understanding eligibility is critical.
Keep in mind that filing as Head of Household is not the same as being allowed to claim a child for the Child Tax Credit/dependency exemption. As explained more below, the IRS rules allow a Court to award the Child Tax Credit/dependency exemption to a parent that has the child less than half the time. However, this doesn’t change a parent’s ability to qualify for Head of Household status. The Head of Household status is determined by the tax rules, which you cannot change by the terms of the divorce decree. The tax rules do not allow the Court to change the Head of Household status, even though the tax rules allow the Court to award the Child Tax Credit/dependency exemption to a non-custodial parent. Thus, a non-custodial parent may qualify for the Child Tax Credit/dependency exemption due to the terms in the divorce decree, but can’t qualify for Head of Household due to a divorce decree.
Can I Claim My Child on Taxes?
Generally the parent who has the child more than half the time is the parent that qualifies to claim the child for tax purposes. Thus, the custodial parent is generally the parent that claims the child for all tax filing purposes.
However, there is a major exception that applies to many families. The IRS rules currently allow the non-custodial parent to claim the minor child for the Child Tax Credit (aka dependency exemption) if certain conditions are met. For practical purposes, this means that the IRS allows the Court to grant the Child Tax Credit to a non-custodial parent, even though the custodial parent is generally still the only parent able to otherwise claim the child for other taxes purposes, including Head of Household and for other available tax credits related to the child. You can’t change the tax rules, even if both parents agree to it.
In order for the non-custodial parent to claim the Child Tax Credit, the Court orders the custodial parent to release the claim to the non-custodial parent, generally by requiring the custodial parent to fill out IRS Form 8332 to release the claim. Sometimes there are additional conditions in the divorce decree before the custodial parent is required to release the tax claim. The most common in Nebraska is that the non-custodial parent must be current on child support by the end of the year or the non-custodial parent forfeits the right to claim the Child Tax Credit for that tax filing year.
It is very common in Nebraska for the Court to alternate who gets to claim the child for the Child Tax Credit each year. For example, the Court could grant the non-custodial parent permission to claim the child for the Child Tax Credit in even numbered tax filing years, so long as the non-custodial parent is current on child support by the end of the year. The custodial parent would claim in odd numbered tax filing years. The decree would include that the custodial parent is required to complete IRS Form 8332 to release the Child Tax Credit claim to the non-custodial parent in the non-custodial parent’s tax filing year.
If the divorce decree does not state who is awarded the Child Tax Credit/dependency exemption, then the default rule is that the custodial parent gets to make the claim, unless the parties fill out and submit IRS Form 8332 by their own agreement.
These rules generally apply to all non-married parents, including those who were never married. While this blog is focused on divorced spouses, the Court can award the non-custodial parent the right to claim the Child Tax Credit in a Custody Order even if the parents were never married.
Can I Deduct Alimony as Income for Tax Purposes?
For divorce decrees finalized before 2019, a former spouse that is ordered to pay alimony can deduct the alimony from their taxable income and the former spouse that receives alimony is required to claim that alimony as additional income for tax purposes, subject to the terms of the divorce decree.
Since 2019, the tax rules no longer allow this shifting of income for tax purposes. If you are ordered to pay alimony in a Decree entered in 2019 or later, you still have to claim that as your income for tax purposes. It does not create additional income for tax purposes to your ex-spouse who receives it. Even if the parties agree to shift the income for tax purposes, you cannot change the IRS tax rules by agreement and cannot shift the tax liability to the ex-spouse receiving alimony.
Can I Deduct Child Support as Income for Tax Purposes?
This was a more common question when alimony was taxed to the spouse receiving it and as a deduction for the spouse paying it. No, supporting your child through a court order of child support instead of direct support to the minor child doesn’t create a tax deduction for the child support amount paid.
Is Child Support Income for Tax Purposes?
No. The child support does not count as taxable income to the parent receiving it. However, receiving child support may affect your income and eligibility for other purposes, such as whether you qualify for certain public assistance benefits.
Who Claims the Capital Gains?
When you sell an asset that has increased in value, you may have to pay taxes based on the increase in value. This is called paying taxes on capital gains. Generally, assets transferred between ex-spouses as part of a divorce decree do not trigger capital gains taxes at the time of transfer. However, when the asset is later sold, you may have capital gains that are taxable. This can have large tax consequences, especially when selling an asset of high value, such as the marital home. The capital gains are generally calculated based on the original purchase price, not the marital value assigned the asset in the divorce.
In a somewhat oversimplified example (ignoring home improvements, closing costs, etc.) to explain the theory in general, see the below examples:
Example 1: The divorcing parties own a home. Wife is awarded the home. The home has a value of $200,000 and there is $50,000 left on the mortgage. The Court calculates her as receiving a value of $150,000 when Wife is awarded this home as part of the overall division of their assets and debts. After the divorce, Wife lives in the home for a little longer and then decides to sell the home. The home was originally purchased for $100,000 and sells for $200,000. Her capital gains are $100,000 ($200,000 – $100,000). She makes $150,000 ($200,000 – $50,000 mortgage) in the sale. This $150,000 received doesn’t result in tax consequences to her as there is an exclusion up to $250,000 for a single person on the capital gains received in the sale of their primary residence and her capital gains were only $100,000.
Example 2: The divorcing parties own a home. Wife is awarded the home. The home has a value of $650,000 and there is $500,000 left on the mortgage due to a refinance. The Court calculates her as receiving a value of $150,000 when Wife is awarded this home as part of the overall division of their assets and debts. Thus, Wife is receiving the same amount of marital value as in the first example. Like in the first example, Wife lives in the home for a little longer and then decides to sell the home. The home was originally purchased for $300,000 and sells for $650,000. Her capital gains are $350,000 ($650,000 – $300,000). The same as the Wife in example 1, she makes $150,000 ($650,000 – $500,000 mortgage) in the sale. However, as she is above the $250,000 exclusion for a single person, she will now have to pay taxes due to the sale of the home and having capital gains over the $250,000 exclusion.
In the second situation, the parties could have considered selling the home while the parties were still married and still able to file as married, filing jointly (see above about still being married on the last day of the year to file as married, filing jointly). Had they sold the home during the marriage and been able to report the home sale on a married, filing jointly tax return, they would have had no tax implications from the sale of the home as the exclusion for two people filing married filing jointly is $500,000 ($250,000 each).
The sale of the home is one of the most common scenarios where capital gains is a factor in determining the overall strategy and timing in a finalizing a divorce.
Another common situation is when the parties are dividing stocks or other investments and there have been significant capital gains on these, especially if one account has significantly greater capital gains than the other.
Especially those individuals with high net worth, the effects of capital gains can be a significant part of your discussion in finalizing a divorce.
How are Funds Received from the Other Spouse’s Retirement Account Taxed?
When you add funds into a retirement account, you save for your retirement and also often decrease how your income is calculated for tax purposes. For example, in 2025, you can contribute up to $7,000 per year ($8,000 if 50 years old or older) to a IRA and then generally have a dollar-for-dollar deduction to how your income is calculated for tax purposes that year. (You have to meet certain income and work requirements, etc. but generally this applies).
However, when you remove funds from most retirement accounts, such as a traditional IRA or 401(K), there are generally tax consequences at that time. The funds received are now generally taxed as part of your income. If you make the withdrawal before you are 59 ½ years old, there is generally an additional 10% tax penalty.
When you divorce, the Court can award the retirement accounts, or part of the retirement accounts, to the spouse not listed as the holder of the account.
A common question is whether this transfer of the retirement funds per the divorce decree from the account in one spouse’s name to the other now creates a tax liability due to funds being moved from the account? And if so, who pays these taxes: the person who had the funds moved into an account in their name or the person who had funds removed out of the account in their name? The answer is usually neither.
The tax rules allow this transfer to be a non-taxable event if done within the rules of the IRS and your state’s tax laws. The exact paperwork and method to transfer the account depends on the type of account.
For example, Wife has a 401(K) through her employment. Husband and Wife do not have another retirement account and all contributions to the 401(K) were during the marriage. The parties tried to contribute as much as they could afford to Wife’s 401(K) to get the most tax benefit available. In their divorce decree, the husband is awarded 50% of the 401(K). To transfer 50% of the funds from the 401(K) from Wife to Husband, the Court enters a Court order called a Qualified Domestic Relations Order (QDRO) which orders the plan administrator of the 401(K) to move half the funds into an account for Husband. Once the plan administrator has processed the QDRO, there are now two separate accounts with the same amount of value: 50% in Wife’s name and 50% now in Husband’s name. This is not a taxable event, even though the funds were moved out of the Wife’s retirement account. Keep in mind that even when the transfer is not a taxable event, you may still have to report the transfer to the IRS. The Plan Administrator will generally send you a Form 1099-R to do so.
Once the transfer is completed, if either party decides to remove the funds from the account in their own name, that spouse who removes funds from their own account will have tax consequences the same as removing any retirement funds from an account in their own name (taxed as ordinary income plus the 10% penalty as described above).
Moving retirement funds between spouses is not something that you should attempt to do without professional help. There are unfortunate cases where the parties began removing and moving funds from a retirement account on their own and created taxes that they could have avoided had they properly followed the IRS rules for transfers due to a divorce.
Keep in mind that the theory is generally the same for most types of retirement accounts. However, whether a QDRO, transfer incident to divorce form, MRPO, COAP, or other type of document is necessary to complete the transfer depends on the type of retirement account and the tax rules that apply to it. Further the rules as how the separate account is created in the other spouse’s name varies per the details of the specific retirement plan. While the general theory is the same, there is a lot of variation here how specifically the transfer is accomplished.
How Does the Divorce Affect Health Insurance and Related Tax Credits?
Post-divorce, insurance coverage often changes. If one spouse was covered by the other’s insurance plan through their employer, the spouse is generally going to need to find new coverage. They likely no longer qualify for coverage on the ex-spouse’s plan (or the ex-spouse becomes ineligible relatively soon after the divorce is finalized, depending on the terms of the insurance plan).
If you have or are looking for coverage under Medicaid or to qualify for tax credits to reduce your monthly health insurance premium through HealthCare.gov, your tax information is often an important piece of the equation. You are also often required to notify if there has been a change in household size and income, and to do so promptly. Your eligibility may be affected in either a positive or negative way. Failure to update information could lead to owing money when taxes are filed, losing potential credits, or other repercussions.
Do I Need to Adjust My Tax Withholding?
Your employer is required to withhold taxes from your paychecks. When you start a new job, you fill out a W-4 to let your employer know your marital status, whether you have dependents, etc., to help set up a proper tax withholding from your paychecks.
Your tax filing status usually changes when you divorce, usually from filing married (either jointly or separately) to Single or Head of Household. This shift affects the tax rates and the standard deductions as they apply to you. It is common to have to adjust your tax withholdings on your paychecks to prevent underpayment or large refunds. When you divorce, your HR department can generally give you a new Form W-4 to review and update based on your new circumstances. You can also find the form available on the IRS’s website.
If you are self-employed or with uneven income, making estimated tax payments quarterly helps avoid penalties.
Keep in mind that alimony in Nebraska ordered before 2019 is generally taxed as income to the party receiving it. Especially if you are still receiving a large amount of alimony, you may need to withhold additional taxes on your other income or make estimated quarterly tax payments to avoid a penalty for underpayment of estimated tax on your annual tax return.
Where Can I Find More Information and a Checklist? IRS’s Divorce and Taxes Checklist
The IRS has put together a Divorce and Taxes Checklist with a general overview and links to more information. This is a useful tool with links to more in-depth information on many topics related to divorce and filing taxes.
Law Office of Julie Fowler, PC, LLO | Divorce Lawyers Omaha
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