How does your divorce affect your tax bill?

How does your divorce affect your tax bill?

Soon you will have to file your tax bill again, but how does any divorce affect this filing?

We already wrote an article about when you should file a joint or separate return. Would you like to know more about when exactly you need to file a separate return? You can here reading.

This article covers the main tax consequences of divorce and its impact on your tax bill, specifically the marital quotient, mortgage loan and alimony.

Marriage quotient

The marital quotient is an arrangement that allows for tax relief by allocating a portion of one partner's professional income to the other partner. This system is especially beneficial if one of the partners has no or a very low professional income. This reduces the total amount of tax you have to pay as a couple, resulting in a lower tax rate.

After divorce, the tax benefit of the marital quotient will disappear. Both ex-partners will be taxed individually on their own income, without the possibility of allocating part of the income to the other for tax purposes.

Mortgage loan

The joint home does often pose a difficult issue in divorces, mainly because of the tax benefits associated with it. For mortgage loans taken out before Jan. 1, 2020, a tax benefit called the "housing bonus" was granted.

When a mortgage loan is taken out jointly, the tax credit is applied and calculated for each partner. How this benefit is treated after divorce depends on the purpose of the property.

• If you sell the home together, you continue to enjoy the benefit even if you file a separate return. You are that no longer an owner, but still the borrower to which the housing bonus is linked.
• If you sell the home and pay off the loan with the sale proceeds, the tax return benefit disappears. After all, you are then neither the owner of the home nor the borrower.
• If one partner takes over the home, the benefit will only apply to his or her tax return. This is considering the fact that the other partner is the full owner from then on and has also taken the full home loan.

Maintenance fee

Under certain conditions, the obligated ex-partner can deduct the maintenance contribution for tax purposes, resulting in a reduction of taxes owed. However, the receiving ex-partner must declare the maintenance contribution received as taxable income in his or her tax return.

It is important to note that the tax treatment of alimony can vary depending on the type (spousal or child support) and the specific circumstances of the situation.

Fiscal dependents

If you have your dependent children, you are entitled to a tax benefit in the form of an increase in the tax-free allowance.

This benefit can normally be granted only to the parent with whom the children have their tax residence. However, tax benefits can be shared equally between both parents in the case of "tax co-parenting." This applies if the child's residence is equally divided and if no maintenance contribution is paid for the child. Indeed, the principle is then assumed that each parent provides half of the child's financial needs.

Both parents report in their tax returns that the child is "dependent, but in co-parenthood." The tax benefit is then shared equally: both parents each receive half of the tax-free allowance.

If you have further questions related to filing your tax return after divorce, please do not hesitate to contact us at info@bannister.be or leave a message on our website. Our attorneys will guide you with the necessary expertise.