Can I deduct my divorce or family law legal fees on my taxes?
The general rule is that divorce is a personal expense and is not deductible as a business expense. United States v. Gilmore (Gilmore I) (1963) 372 U.S. 39. So the short and easy answer is, “No."
However, don’t despair. There are still some ways you can get a break from some of those fees. Here are some exceptions to the general rule:
- Fees to obtain alimony or taxable pension distribution. If you are a spousal support or alimony recipient, you can deduct those fees relating to obtaining taxable spousal support or a taxable pensions distribution. (See I.R.C. § 212(1); Treas Reg. 1.262-1(b)(7); Wild v. Commr. (1964) 42 T.C. 706. So, those fees that you spend with your attorney to get spousal support from your ex can usually be deducted. Don’t forget, the fees for getting your share of a pension distribution may also be deductible.
- Tax planning or advice. The costs of tax planning or advice are deductible. I.R.C. § 212(3). We family lawyers tend to shy away from giving anyone tax advice because we are, for the most part, not tax attorneys or CPAs. However, there can be occasion as you are planning your divorce or legal separation that your attorney gives you some tax advice. (For example, tax advice about dependency exemptions, deductibility of spousal support payments, post-divorce real estate transfers, etc.) When that happens, the associated fees can be deductible.
- Capitalize. Even if the fees for your divorce lawyer aren’t deductible, expenses can often be capitalized. Serianni v. Commissioner (11 Cir 1985) 765 F.2d 1051, 1985 CFLR 2892. Talk to your CPA about how this can be done.
Below the line. Now these aren’t the greatest of deductions because they are below the line. But every little bit helps… right?
Talk to your lawyer early! If you are interested in deducting some of your legal fees on your taxes, it is important that you have a conversation with your family law attorney early so that (s)he knows to keep track of your fees and what portions may be deductible. Typically, your attorney can give you a letter at the end of the year indicating what portion of your fees were, for example, associated with the collection of alimony. Usually this so-called “allocation letter" sent by the attorney to the client will suffice as sufficient proof of the deduction to satisfy the IRS. Goldaper v. Commissioner (1977) T.C. Memo. 1977-343, 36 T.C.M. 1381, 1979 AFLTR 1110. However, if your attorney doesn’t know that you will want to claim this deduction, you will put him in the difficult and awkward position of trying to recreate his records. It’s better that he knows from the outset so that (s)he can keep better track.
As with every tax question, it’s a really good idea to talk it over with your CPA. The rules can be complex and there are limitations. However, with a little diligence, you may save some money at tax time.