Partition rights, family quota, alimony, compensatory allowances, capital gains on principal residence: Divorce affects your taxes. The subject is complex, but has high financial stakes. Le Revenu guides you to help you make the right choice and not pay a euro more.
For married couples, taxation may be a business of both spouses, but it is often conducted by only one. Once divorced, everyone faces their tax obligations.
In the discussions you are going to have with your lawyer, you will need to consider the implications of the divorce on your taxation, especially in relation to the financial flows between the couple as a result of the separation (alimony, alimony, etc.). A proper understanding of these implications will enable you to optimize the tax consequences of your separation.
Reporting Obligations: Update your circumstances
The first instinct is to notify the tax authorities of a change in your circumstances. The procedure is done online in the “Manage my withholding at source” section. You must notify the tax authorities of your change in circumstances and provide an estimate of your personal income as well as the number of dependents so that they can recalculate your withholding tax rate.
No need to wait a year to update your situation. Organizations that pay you income (employers, pension funds, etc.) within a maximum of one month are notified of the new rate. In the year of divorce, each must file their own tax return for the entire year.
Family Quotient: If you’re single, point it out!
The French tax system takes dependent children into account when calculating household income tax. In principle, when the couple separates, the tax benefits associated with the excess share go to the parent with whom the child primarily resides. Thus a divorced parent, living alone with exclusively dependent children, is entitled to one share for the first child, half for the second child and the entire share from the third child.
The situation is different in case of shared residence. The tax benefits associated with excess shares can be split between the parents. This does not occur in the presence of adult children who can only be attached to one of their parents (up to the age of 21 or 25). In the case of alternative residence, if alimony is paid, the sharing of tax benefits may be punitive.
In fact, if one of the spouses pays alimony, the benefit resulting from the deduction is often more favorable than the addition of the children (an additional quarter or half share). These tax consequences must be determined by the couple’s attorneys in determining the amount of child support.
Alimony: Announce it!
Divorce does not change parents’ duties to their children. Maintenance is usually awarded to the parent who has custody of the child for maintenance and education. This financial assistance is deductible from the income of the person providing it. It is deductible up to the amount determined by the judge or in the divorce agreement. As long as the child is a minor, the deduction is not limited. If the pension continues to be paid to an adult child in need (student, unemployed, health problems), the exemption is limited to 6,042 euros in 2022.
Additionally, the parent who receives it must include the amount received in his or her income. In 2022 it must be declared under pension after deducting 10% of the allowance at 3,912 euros per tax family. Regarding the pension received for an adult child, do not declare more than necessary, i.e. within the limit of the amount deducted by the other parent (limited to 6,042 euros for 2022).
As an indication, a simulator available on the Justice.gouv.fr website gives you an estimate of the allowance according to the income of the person paying it, the number of children and the type of custody (alternative or not).
Compensatory benefit: A potential tax reduction
Allocation of compensatory benefits is not systematic. The intention is to compensate the financial imbalance caused by the divorce as much as possible in the respective living conditions of the spouses.
It is awarded to the person who has suffered the most financially from the divorce. If compensatory allowance is paid in lump sum, two cases may arise. When paid within twelve months of divorce, it is non-taxable to the person receiving it and non-deductible to the person paying it.
In addition, the person who pays it benefits from a 25% tax reduction up to a limit of 30,500 euros, i.e. a maximum tax saving of 7,625 euros. If the capital payment is made over a period of more than twelve months, the sum is taxable to the person receiving it and deductible to the person paying it. If the compensatory allowance cannot be paid in capital, it may be granted in the form of an annuity. But this method is less and less frequent.
IFI: To share
Spouses’ joint assessment of property tax ends in the year following divorce, regardless of the couple’s marital regime. In the year of separation, the couple sharing the tax burden owes IFI.
So if you divorce in 2022, each spouse will be taxable separately from only 1.er January 2023. In 2023, each spouse will be liable for IFI if the value of the real estate they own at the end of the partition exceeds a threshold of 1.3 million euros (after deducting the debt).
Local Taxes: Everyone pays for their accommodation
In principle, when spouses live separately, residence tax is payable for the residence that constitutes the matrimonial home by the spouse who has sole ownership (CE, 30 June 1982, No. 24984). But in the year of divorce, the spouses will be jointly and severally liable to pay the housing tax for the entire year, even if they do not live under the same roof after January 1st.
For property taxes, you are liable for these taxes on your property on January 1st. Please note that local tax exemptions and reductions are halved for alternative accommodation.
Share rights: Rates reduced
Whether amicable or contentious, divorce ends the marital rule of the spouses. Spouses have to share jointly acquired property whether joint or undivided, will be taxed by the tax authorities!
Fortunately, the tax bite has eased in the past two years. The rate of right of partition applicable on divorce has gradually increased from 1 to 2.5% to 1.1%.er January 2022. But if you own your home, the bill can quickly reach hundreds of thousands of euros.
To avoid these tax costs, a strategy offered by some professionals is to sell the home before the divorce with a verbal split of the sale price. Because the right to share does not accrue in the absence of a law establishing it. Be careful not to mention this share of value in the divorce agreement. Le Revenu advises the utmost caution in this regard.
Capital gain on sale of principal residence
In principle, capital gains realized after the sale of your principal residence are exempt. But in the case of separation, if one of the spouses leaves the residence before the sale of the property, the exemption will not necessarily be automatic.
Capital gains are not taxable if the residence was her principal residence before the separation, and if the property was occupied by her ex-spouse until the sale. No delay is required between the date of separation and sale. But the sale period should not normally exceed one year.