Are Divorce Legal Fees Tax Deductible?

A frequent question during a divorce is whether the associated legal fees can be deducted on your tax return. The answer is complex and depends on the specific nature of the legal services provided. Recent changes in tax law have substantially altered the landscape for these deductions, making it important to understand the current rules, as what might have been deductible in the past may no longer qualify.

The General Nondeductibility of Divorce Fees

The Internal Revenue Service (IRS) establishes that legal fees connected to a divorce are generally not tax-deductible. This is because the tax code broadly disallows deductions for personal, living, or family expenses. A divorce is a personal matter, and therefore, the costs incurred to dissolve a marriage fall into this nondeductible category.

For example, fees paid to an attorney for negotiating child custody arrangements or visitation rights are considered personal expenses and cannot be deducted. Similarly, the costs associated with the legal division of personal assets, such as the family home or vehicles, are nondeductible. Other common legal actions, like restoring a former name, also fall under this personal expense umbrella.

The Exception for Tax Advice

One of the historical exceptions to the general rule involves legal fees paid specifically for tax advice. This includes counsel from an attorney regarding the tax implications of a divorce settlement, such as structuring property transfers to minimize tax consequences or advising on the tax treatment of retirement account divisions. To qualify, these fees had to be distinctly for tax planning.

This exception, however, has been impacted by the Tax Cuts and Jobs Act (TCJA) of 2017. Before the TCJA, fees for tax advice were deductible as a miscellaneous itemized deduction on Schedule A of Form 1040. This deduction was subject to a limitation, meaning taxpayers could only deduct the amount of their total miscellaneous deductions that exceeded 2% of their Adjusted Gross Income (AGI).

The TCJA suspended the deduction for all miscellaneous itemized deductions subject to the 2% AGI floor for tax years 2018 through 2025. This change means that even if you pay for specific, itemized tax advice during your divorce, those fees are currently not deductible on your federal tax return. Unless Congress changes the law, this suspension will remain in effect through 2025.

The Exception for Producing Taxable Income

Another exception has historically allowed for the deduction of legal fees paid to produce or collect taxable income. In the context of a divorce, this rule primarily applied to securing alimony, which was once considered taxable income to the recipient. However, this deduction is currently unavailable.

For divorces finalized after December 31, 2018, the TCJA permanently changed the tax treatment of alimony. Under the new law, alimony payments are not considered taxable income for the receiving spouse. Since the alimony received is no longer taxable, the legal fees paid to obtain it no longer qualify as an expense for the production of taxable income.

For divorces finalized on or before December 31, 2018, the old rules still apply, meaning the payments are taxable to the recipient. In theory, the legal fees to secure this income would be deductible. However, these fees were also classified as a miscellaneous itemized deduction, which, as noted earlier, has been suspended by the TCJA through 2025. Therefore, legal fees for securing alimony are not currently deductible, regardless of when the divorce was finalized.

How to Substantiate Deductible Fees

Should the law change in the future to restore these deductions, the burden of proof will rest with the taxpayer. The IRS requires clear documentation to support any claimed deduction. A single, lump-sum bill from an attorney is insufficient because it does not distinguish between deductible and nondeductible services.

To properly substantiate a deduction, you must obtain a detailed, itemized invoice from your legal counsel. This document needs to clearly break down the services rendered and allocate the corresponding fees. For example, an invoice would need to list separate line items for work related to tax advice versus work on nondeductible matters like child custody.

Without this specific allocation, the IRS would likely disallow the entire deduction during an audit. It is advisable to request that your attorney maintain separate billing records for different services to ensure you have the necessary documentation.