Tax Issues in a North Carolina Divorce: Filing Status, Dependents, and Deductions

Divorce doesn’t just divide families and finances—it can also reshape your entire tax picture. Decisions about who claims dependents, how you file, and what deductions apply can significantly affect your income and refund for years to come.

Many people overlook these issues until it’s too late, but the tax consequences of divorce in North Carolina can impact everything from child support to property settlements. Understanding the rules—and planning strategically—can help you avoid IRS complications and keep more of what’s yours.

At Martine Law, we help clients address every financial aspect of divorce, including how tax law intersects with North Carolina’s family law system. Our attorneys work to protect your bottom line while ensuring that your agreements comply with both state and federal tax requirements.

Learn more about tax guidance for divorcing couples from the North Carolina Department of Revenue and the Internal Revenue Service (IRS).

1. Filing Status After Divorce or Separation

Your filing status depends on your marital status as of December 31 of the tax year.

Here’s how it works:

• Still married on December 31: You may file as Married Filing Jointly or Married Filing Separately.
• Divorced by December 31: You must file as Single or, if you qualify, Head of Household.

Married Filing Jointly

This status often provides the lowest tax rate and the largest standard deduction, but both spouses are jointly liable for any taxes owed or errors made.

If your divorce is pending and you don’t trust your spouse’s reporting accuracy—or suspect unreported income—it may be safer to file separately.

Married Filing Separately

Each spouse reports their own income and deductions. You’ll likely pay more overall, but you protect yourself from tax liability tied to your spouse’s mistakes or omissions.

Head of Household

If you have a dependent child and pay more than half the cost of maintaining your home, you may qualify as Head of Household, which offers better tax benefits than filing as Single.

To qualify, you must:

• Be legally separated or divorced.
• Have a child or qualifying dependent living with you more than half the year.
• Pay over half the household expenses.

2. Claiming Dependents After Divorce

One of the most common post-divorce disputes involves who gets to claim the children as dependents for tax purposes.

Generally, the custodial parent (the one the child lives with more than half the year) is entitled to claim the dependency exemption. However, parents can agree to transfer the exemption to the noncustodial parent.

This is done using IRS Form 8332 (Release/Revocation of Claim to Exemption for Child by Custodial Parent), which must be signed and attached to the noncustodial parent’s tax return.

Your divorce decree or settlement agreement should clearly state:

• Who will claim each child each year.
• Whether the right to claim dependents alternates yearly.
• Any conditions tied to claiming (such as being current on child support).

Important: The IRS follows the physical custody rule—not necessarily what your court order says—unless Form 8332 is completed properly. Your lawyer should ensure your agreement aligns with IRS requirements to prevent future disputes.

3. Child Tax Credit and Other Tax Benefits

The Child Tax Credit, Earned Income Tax Credit (EITC), and Child and Dependent Care Credit are valuable benefits that depend on who claims the child as a dependent.

• Child Tax Credit: Worth up to $2,000 per qualifying child. Usually claimed by the custodial parent.
• Child and Dependent Care Credit: Helps offset childcare costs for working parents.
• Earned Income Tax Credit: Designed for lower- to moderate-income households but only available to the parent with whom the child lives most of the time.

Parents should coordinate these claims carefully to avoid both filing for the same child—which can trigger IRS audits or delayed refunds.

4. Alimony and Support Payments

Tax treatment of alimony (spousal support) changed under the Tax Cuts and Jobs Act (TCJA) in 2019.

• For divorces finalized after December 31, 2018:
  • Alimony is not tax-deductible for the payer.
  • Recipients do not report alimony as taxable income.
• For divorces finalized before 2019:
  • Old rules may still apply if your agreement has not been modified.
  • Payers can still deduct alimony, and recipients must include it as income.

Child support, by contrast, is never deductible and is not taxable income to the recipient.

It’s crucial to structure your support agreements correctly to avoid confusion or IRS penalties. At Martine Law, we ensure your orders comply with both North Carolina law and federal tax regulations.

5. Property Division and Taxes

North Carolina uses equitable distribution to divide marital property fairly. Fortunately, property transfers between spouses as part of divorce are generally tax-free under IRS Section 1041—as long as the transfer occurs within one year after the divorce or is directly related to it.

However, later sales or withdrawals from those assets can create tax liability. Common examples include:

• Selling the marital home: You may qualify for a capital gains exclusion (up to $250,000 for single filers, $500,000 for joint filers).
• Dividing retirement accounts: Use a Qualified Domestic Relations Order (QDRO) to divide 401(k) or pension funds without early withdrawal penalties.
• Liquidating investments: May trigger capital gains taxes depending on cost basis and timing.

Careful planning during property division can prevent surprise tax bills later.

6. Deductions and Tax Credits After Divorce

Some deductions and credits may change or disappear after divorce, including:

• Mortgage interest and property taxes: Only deductible by the person who pays them and owns the home.
• Education credits: The parent who claims the child as a dependent typically claims education credits.
• Medical expenses: You can deduct medical expenses you paid for your children—even if your ex claims them as dependents.

A family law attorney working with a tax professional can ensure your settlement maximizes available deductions while remaining compliant.

7. Common Tax Mistakes to Avoid in Divorce

1. Filing the wrong status. Your marital status on December 31 controls your filing category.
2. Both parents claiming the same child. Coordinate dependency claims to avoid IRS rejection.
3. Ignoring tax implications of property transfers. Understand capital gains and retirement distribution rules.
4. Failing to update W-4 withholding. Adjust your income tax withholding to reflect your new situation.
5. Overlooking QDROs or transfer paperwork. Without proper documentation, you could face unnecessary taxes or penalties.

How Martine Law Helps You Navigate Divorce-Related Tax Issues

Taxes are often the hidden battlefield in divorce. At Martine Law, we help clients anticipate and minimize the tax impact of every decision—from alimony to home sales to dependency claims.

Our attorneys:

• Coordinate with accountants and tax professionals to ensure compliance.
• Draft divorce agreements that clearly address filing status and child-related tax benefits.
• Prepare QDROs and property transfer documents correctly.
• Ensure both short-term and long-term financial protection.

We make sure your financial outcome is fair, transparent, and sustainable—so you can start your next chapter with clarity and confidence.

If you’re navigating a divorce in North Carolina, get guidance before tax season arrives.
Contact Martine Law today for a confidential consultation about how to protect your financial future.