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