Divorce is never just emotional—it’s also financial. And if you’re getting divorced in Washington, taxes are a big part of the process you can’t afford to overlook.
Washington is a community property state and has no state income tax, but federal tax laws still apply. Understanding the tax implications of divorce can help you avoid costly surprises, protect your assets, and set yourself up for financial stability after separation.
Here’s what you need to know about Washington divorce & taxes, from filing status to alimony, property division, and beyond.
How Does Divorce Affect Your Tax Filing Status?
Your filing status determines your tax bracket, standard deductions, and credits. It all depends on your marital status on December 31 of the tax year.
Still married on December 31?
You can file as Married Filing Jointly or Married Filing Separately. Joint filing usually results in lower taxes, but that’s not always the best option if your ex-spouse has complex financial issues or you’re trying to maintain financial independence.
Divorced or legally separated by December 31?
You’ll file as Single or possibly Head of Household if you qualify. Head of Household offers a higher standard deduction and better tax rates, but you must meet IRS rules. Usually, the custodial parent, the one the child spends the most nights with, can claim this status.
Alimony and Child Support: Are They Taxable in Washington?
Alimony, also known as spousal support, has long been a key consideration in divorce settlements, especially when one spouse earns significantly more than the other. Historically, alimony payments came with a specific set of tax implications: the spouse paying alimony could deduct those payments from their taxable income, while the receiving spouse was required to report the alimony as income and pay taxes on it. This arrangement allowed the higher-earning spouse to reduce their tax burden while shifting tax liability to the lower-earning spouse, who typically paid taxes at a lower rate.
However, this changed with the Tax Cuts and Jobs Act of 2017 (TCJA). For divorces finalized on or after January 1, 2019, alimony is no longer considered taxable income for the recipient, and the paying spouse can no longer deduct the payments on their tax return. This shift has significant financial implications for divorcing couples. It means the paying spouse must now cover alimony with post-tax dollars, increasing the true cost of these payments. Meanwhile, the recipient no longer needs to worry about setting aside money for taxes on alimony received.
For divorces finalized before January 1, 2019, the previous tax rules may still apply, unless the divorce agreement was modified after that date in a way that expressly adopts the new tax treatment. If you’re working under an older alimony arrangement, it’s essential to review your divorce decree with a family law attorney or tax advisor to determine which rules apply to your situation.
Child support is simpler. Unlike alimony, child support is not tax deductible for the parent who pays it. The paying parent cannot claim it as a deduction on their income taxes, regardless of the amount or the custody arrangement.
For the parent receiving child support, these payments are not considered taxable income. The IRS treats child support as a direct contribution to the child's expenses, not as income to the custodial parent. As a result, child support payments have no impact on the recipient’s taxable income and do not need to be reported on federal tax returns.
Even though child support is straightforward from a tax perspective, it’s still crucial to clearly outline payment terms in your parenting plan or divorce settlement to avoid future disputes. Understanding the differences between alimony and child support, and how each is treated by the IRS, can help both parties avoid tax-related surprises and plan their finances more effectively after divorce.
What Are the Tax Implications?
Washington is a community property state, meaning that assets acquired during the marriage are typically split 50/50. But the IRS cares about how those assets are transferred and taxed, especially when it comes to:
- Capital gains: Selling a jointly owned home? If you’ve lived there at least 2 of the last 5 years, you may each qualify for a $250,000 exclusion on capital gains ($500,000 if you filed jointly before the sale).
- Stock portfolios: Remember to account for the cost basis of investments when dividing brokerage accounts. If you sell appreciated assets, you’ll owe capital gains tax.
- Retirement accounts: Dividing a 401(k)? You’ll need a Qualified Domestic Relations Order (QDRO) to avoid penalties. IRA transfers can be tax-free if properly structured but withdrawals are taxable unless rolled over.
Even though property transfers between spouses during divorce are not taxed, you’ll need to think about the future tax liability of those assets.
Custody and the Child Tax Credit
The custodial parent typically claims the Child Tax Credit, but you can negotiate this in your divorce settlement. Some parents alternate years or split credits if there are multiple children.
To officially let the non-custodial parent claim the credit, the custodial parent must sign IRS Form 8332 each year.
Other credits to consider:
- Earned Income Tax Credit (EITC)
- Child and Dependent Care Credit (for daycare and after-school care)
These can have real financial impacts, so it’s critical to handle them carefully in your parenting plan.
Withholding and Estimated Taxes After Divorce
Once your divorce is finalized, you should:
- File a new Form W-4 with your employer to adjust your withholdings.
- Update your tax withholdings or estimated tax payments if you’re self-employed.
Failure to update your withholding could lead to owing taxes at the end of the year.
Are They Tax Deductible?
Most divorce-related legal fees are not tax deductible, even if you hire a divorce lawyer or mediator.
However, there are exceptions:
- Fees paid for tax advice related to divorce may be partially deductible.
- Fees for figuring out the tax implications of property transfers might be added to the basis of the property, reducing future capital gains taxes.
If you filed joint tax returns during the marriage, you could still be held jointly responsible for unpaid taxes, even after divorce.
To protect yourself:
- Review past tax returns with your attorney or a tax professional.
- Consider requesting Innocent Spouse Relief from the IRS if you believe your ex-spouse underreported income or claimed improper deductions.
Protect Yourself from Costly Tax Mistakes
Divorce is stressful enough, you shouldn’t have to deal with unexpected tax bills on top of everything else. Whether you’re negotiating property division, alimony, or child custody, taxes are always part of the conversation.
Work with an experienced Washington divorce lawyer and tax advisor to:
- Understand your rights and obligations
- Time your divorce for tax efficiency if possible
- Set up a financial plan that protects your long-term interests
When it comes to Washington divorce & taxes, preparation is power. Don’t leave your financial future to chance