Are Divorce Attorney Fees Tax Deductible?

Imagine you’re finalizing your divorce—an emotionally draining process, but you're also trying to grasp the financial aftermath. You’ve spent thousands on attorney fees, and now tax season is looming. You wonder: Can you deduct these attorney fees on your taxes?

Here’s the short answer: No, divorce attorney fees aren’t tax deductible. However, there are important nuances that may offer some relief. While general divorce-related legal fees are not deductible, certain specific legal costs tied to generating taxable income or legal advice related to tax matters may be.

What You Cannot Deduct:

The Internal Revenue Service (IRS) is very clear on this: legal fees that are purely personal in nature, such as those for divorce, child custody, or alimony disputes, are not deductible. The IRS sees these as personal expenses, which are not eligible for deduction. Whether you're paying an attorney to handle the division of marital assets or drafting a divorce settlement, those costs are categorized as personal and therefore nondeductible.

What You Can Deduct:

However, you might still be eligible for deductions under certain circumstances. If any portion of your attorney fees is related to the production or collection of taxable income, or securing taxable income, those fees could be deductible. Examples of deductible expenses include:

• Tax advice related to alimony: If your lawyer offers advice on alimony tax implications, that portion of their fees could be deductible.
• Efforts to collect alimony: Since alimony is considered taxable income, the costs of legal fees incurred in collecting alimony might be deductible.
• Legal fees related to business assets: If your divorce involves the division of business assets, you might be able to deduct a portion of the attorney fees related to the protection or collection of those assets.

For example, let’s say you're involved in a divorce, and your attorney works with you to secure an alimony settlement. If the alimony is taxable under IRS rules, the portion of your attorney’s fees that went into securing that alimony could be considered a deductible expense.

Breaking Down Deductible and Nondeductible Expenses:

To make this clearer, here’s a breakdown of typical divorce-related attorney fees:

Type of Attorney Fee	Deductible?
General divorce attorney fees	No
Legal fees related to tax advice on alimony	Yes
Legal fees related to child custody disputes	No
Legal fees for the collection of alimony	Yes
Legal fees related to business or income-generating assets	Yes

What About Pre-2019 Alimony Agreements?

Before 2019, alimony was deductible for the payor and counted as taxable income for the recipient. Under the Tax Cuts and Jobs Act, however, this changed for divorce agreements signed after December 31, 2018. For those who pay alimony, it's no longer deductible, and for recipients, it’s no longer taxable. But, if your divorce agreement was finalized before 2019, you might still be able to deduct attorney fees related to alimony, as those payments would remain tax-deductible.

Keep Detailed Records

If you’re thinking of deducting any legal fees, it’s crucial to keep detailed records of your attorney’s billing and ensure that the fees are broken down by type of service. The IRS may require you to provide documentation showing exactly which portions of your fees are related to taxable income or tax advice. Without clear records, you could lose out on the deduction.

Consult a Tax Professional

Given the complexity of these rules, it’s wise to consult a tax professional who can evaluate your specific situation. They can help you determine what part of your legal fees is deductible and ensure that you're following IRS guidelines to avoid any issues.

Closing Thoughts:

While the general rule is that divorce attorney fees aren’t tax-deductible, there are exceptions related to tax advice and income production. Understanding these nuances could save you money come tax season. Always keep detailed records of your legal fees, and work closely with both your attorney and a tax professional to maximize any potential deductions.

So, the next time you're paying for legal services in the midst of a divorce, don’t automatically assume all expenses are non-deductible. Take a closer look at the nature of those fees—you might be able to recoup some of that money when you file your taxes.