What Are the Tax Implications of Divorce?

Are you thinking about divorce after years of poor communication, or simply wanting to avoid future conflicts with your partner? Divorce can certainly be a viable solution.

What Are the Tax Implications of Divorce?

However, there are several tax-related consequences that come with it. Here’s a detailed breakdown of what to expect.

Income Tax Filing Procedures

Starting from January 1 of the year following the divorce or legal separation, each spouse must establish their own tax status. This means that they are required to file separate tax returns.

Both parties must declare their individual income, as well as a portion of any shared income if applicable. In cases where the division of shared income isn’t clearly defined, it is split equally between the two parties.

There are also two ways to handle the tax status of minor and adult children after a divorce. First, children living with their parents need to be linked to their parents' tax return, either at the primary residence or shared between two homes in cases of joint custody.

Second, university students under 25 can be included in the tax return of just one parent, with the custodial parent alternating yearly if necessary. However, once a child turns 18, they can be added to the parent’s household tax return.

Alimony and Taxation

Alimony payments are subject to taxation. Both the recipient and the payer are affected by withholding taxes. The ex-spouse making the payments can deduct alimony from their taxable income, while the recipient must declare it as income (though a 10% deduction applies).

However, any alimony received during the divorce year is tax-exempt, as is the rest of the year's income. If you’re currently in divorce proceedings, you must declare the monthly amount you receive or pay in alimony.

These alimony-related amounts will influence your income tax return, helping calculate your tax obligations. This will also affect your source tax rate, which is recalculated based on these inputs.

Impacts on Property Tax (Taxe d'Habitation)

When couples live together, both are typically responsible for paying the property tax. Previously, an ex-spouse could request exemption from paying this tax if they no longer occupied the family home.

However, following a legal change in December 2018, the co-owner is now responsible for paying the property tax, even if they no longer live in the property. Before this ruling, the spouse living in the home was solely responsible for the property tax.

This is a critical shift, especially for divorcing couples where only one spouse remains in a home owned by both parties. The Court of Cassation has now ruled that property tax is a preservation cost, meaning that it must be paid collectively rather than by the individual still living in the property.

Impacts on Real Estate Taxes (Impôt Foncier)

The reimbursement of this tax can only be claimed by a spouse if the property being taxed was jointly owned as of January 1 of the relevant tax year.

Any property, whether developed or undeveloped, is taxed in the name of the owner. Therefore, the owner is required to pay real estate taxes as of January 1 of the tax year.

Considering the various financial burdens divorce may bring, it's important to reflect carefully on the decision. This includes weighing the emotional aspects along with the potential fiscal challenges.