How will my divorce affect my taxes?

Frequently asked questions about divorce and taxes

When a couple decides to separate and file for a divorce, it can be overwhelming for both parties. One of the many aspects to consider is how it will affect your taxes. 

These are a few of the most common tax questions asked in the divorce process and the answers that follow.

When does the government consider you separated?

  • The CRA (Canada Revenue Agency) considers you separated when you live separate and apart from your spouse or common-law partner for 90 days or more due to a breakdown of the relationship
  • Once you are separated for that time, the effective day of your separation is the day you started living apart
  • For the child benefit, the CRA may only recognize you as being separated if you live in a separate households

When should you let the government know and how?

  • If you meet the criteria for being separated according to the CRA within a given tax year, you will file your taxes that year as separated”
  • Once you finalize your divorce, CRA expects you to notify them by the end of the month following the month your divorce was finalized
  • This can be done on the phone, online or by mail
  • Going forward you will file your taxes as divorced”

Will I be taxed on child support?

  • If receiving child support, it is not taxable
  • If paying child support, you cannot claim it as a deduction

Are legal fees tax deductible?

  • Legal fees that were paid to obtain or collect child support are deductible
  • Fees for preparing a separation agreement or division of assets are not

Will I be taxed on asset transfer?

  • Capital property (most assets) can be transferred to the recipient spouse without tax consequences
  • If transferring a home or a family cottage, important steps need to be taken to ensure you are not liable for capital gains tax
  • Proper tax planning can help eliminate or reduce capital gains tax on the transfer of property like shares or rental properties

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