Divorce and the Tax Mistakes Most People Miss
- Josephti Cruz
- Aug 7
- 2 min read
When I went through my divorce, I didn’t realize how complicated the financial side would get, especially when it came to taxes. In the middle of all the emotions and decisions, it’s easy to overlook tax implications. But what I learned, both from experience and from working with others, is that not understanding the tax impact of your settlement can cost you for years. According to the National Endowment for Financial Education, nearly half of divorced people didn’t fully understand the tax consequences of their agreement before signing. I was one of them.
Here’s the thing: a dollar is not always a dollar. A $100,000 Roth IRA is worth more than a $100,000 traditional 401(k) because Roth withdrawals are tax-free, while 401(k) withdrawals are taxed as regular income. The same goes for brokerage accounts. If you inherit an account with a low cost basis, you could owe thousands in capital gains taxes later. Even something like keeping the house can come with surprise tax consequences, especially if you lose part of your capital gains exclusion as a single filer.
If you have kids, it gets even more complicated. Who gets to claim them, how many nights they stay with each parent, and what your new filing status will be all play into your tax picture. The rules around alimony have also changed. For divorces finalized after 2018, alimony payments are no longer tax-deductible for the payer or counted as income for the recipient. That shift alone can change how support should be negotiated.
The biggest lesson I learned is to slow down and think about the long term. A settlement that feels fair today might look very different once taxes come into play. If I could go back and do one thing differently, it would be bringing in a financial advisor and tax professional early in the process. Because protecting your peace is important—but protecting your financial future is just as critical.
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