How Divorce Affects Your Income Taxes

11 Comments

My soon-to-be-ex-husband and I split in mid-2016. When most people hear the word “divorce,” they can’t help but think of the associated negative financial consequences, but many forget the tax implications. Even I didn’t consider them until I sat down to file my taxes and learned that even though we’d been living “separate and apart” for more than half a year, his income would still have a big impact on my income tax filing.

If you’re recently separated or divorced, it’s important to understand how this affects your taxes. Below are some tips to help make filing your income taxes go as smoothly as possible in the wake of the breakdown of your marriage.

Change your marital status with Canada Revenue Agency

In the eyes of the CRA, once you’re married, you’ll never file taxes as “single” ever again. You’re forever separated or divorced. Semantics aside, it’s important to notify the CRA of the change in your relationship status. Your change in status might change what tax credits you’re entitled to (or no longer entitled to), so to ensure everything is up to date and correct, let them know sooner rather than later. This will save you the headache of unexpected bills when you file your taxes later!

You still need to know your ex-spouse’s information

Just like when you were married, you’ll need to know information like your ex’s SIN and income to file your income tax return. You’ll have to include your separation date and net income, and this can drastically affect your return.

I was thrilled to find out I was getting a $4,000 income tax refund when I filed my taxes… until I entered my ex-husband’s net income and learned the actual amount I’d be getting back was a mere $700. Bummer. Save yourself some disappointment and the frustration of amended or reassessed returns, and make sure to include all the detailed information required. If you use an online platform like TurboTax, you will be prompted to enter this info right when you start your return and then asked to review it again before you submit your income tax filing to the CRA.

Your legal fees are not tax deductible

Whomp-whomp. It is no secret divorce is expensive, and one of the main reasons is lawyer fees. Even if you had an amicable split, chances are there are still some legal costs. Unfortunately, most of these expenses have to come out of your net income and cannot be claimed when you file your income taxes. The exception is legal fees incurred seeking spousal or child support. Other than that, expect to be on the hook for your separation and divorce fees.

Don’t cash out your RRSPs when splitting assets – you can transfer them

Withdrawing from your RRSP before retirement means you have to pay income tax on the amount withdrawn, and you never get that contribution room back! But how else are you supposed to split this money when it comes to divvying up the assets acquired in the marriage?

There’s a special rule in the Income Tax Act that allows one spouse to transfer RRSP money to the other spouse in the event of separation or divorce. If you or your spouse has to make an equalization payment to make splitting up your marital assets fair, keep the RRSP sheltered to minimize the tax burden.

Related: Maximizing Your Income Tax Refund With RRSP Contributions

Child support and spousal support

If you have children, you can’t claim child support as a tax-deductible expense, and your spouse doesn’t have to pay taxes on it. But you both will still include the correct amounts on your income tax returns. Spousal support payments, on the other hand, are tax deductible for both parties.

If you have primary custody of your child(ren), you can claim the full amount of the if you qualify. The CCB itself is not taxable and does not need to be reported on your income tax return. As a single parent, you may be able to claim your child as an eligible dependent, which provides a large tax credit that can be claimed for one qualifying child annually.

Divorce is enough of a hassle without any additional financial surprises, so make sure you have all the numbers you need and seek out a tax specialist if needed!

This post was sponsored by TurboTax. The views and opinions expressed in this blog, however, are purely my own.


11 Comments

  1. Oy, sorry you have to go through all of this. This is great information to have, though. I know divorce has ALL KINDS of effects, but I never even considered taxes before. I was hoping there would be some kind of tax break for such a big life change. Hrmph.

    • Bridget Casey (Author)

      I didn’t consider taxes either until I was actually filing them… then there was a lot of disappointment as I watched that $4,000 refund disappear.

      There’s sadly no tax break for such a life change… moving expenses are about all you can claim lol

  2. cici

    Spousal support is taxable and deductible. Deductible for the payor and taxable for the recipient. https://www.cbabc.org/For-the-Public/Dial-A-Law/Scripts/Family-Law/133

    • Bridget Casey (Author)

      Yes, that’s what it says in the post. Child support is not, spousal support is.

      • cici

        Yes, that is correct regarding the different treatment of child and spousal support payments. But your post says “spousal support payments, on the other hand, are tax deductible for both parties” when the payments are only tax deductible for the payor not the recipient.

  3. Josh

    Sorry you’re going through this. Hopefully this is at least the last (financial) reminder of this. :/
    Thank you for continuing to write a fantastic PF blog. Your content, as difficult as it may be at times, is invaluable.

  4. Great advice Bridget, thanks for sharing you personal story…
    I’m certain it was emotionally challenging, especially losing the tax refund, yikes!

    All the best,

    Stephen

    • Bridget Casey (Author)

      omg. Nothing hurt more than watching $3,000 disappear with one number entry. Oh well!

      Thanks for your comment Stephen!!

  5. Divorcing is the life changing decision. There are many factors to be considered in it. Financial gains and deductions also come under the factors. Having all these going through in your life, you are providing us such a helpful content, thanks for that

  6. Divorce is no fun. Now that I’m almost 4 years out though, I can say I’m much better off. Both financially and emotionally. E-Hugs while you’re going through all this.