What You Need to Know for 2026
As tax season approaches, many divorced and divorcing couples in Arkansas face questions about how their marital status affects their tax obligations. Whether you’re in the middle of divorce proceedings or recently finalized your decree, understanding the tax implications can save you money and prevent costly mistakes.
At Mann & Kemp, we help Arkansas clients navigate the financial complexities of divorce—including the often-overlooked tax consequences. Here’s what you need to know for 2026 and beyond.
Your Filing Status Matters
Your marital status on December 31st determines your filing status for the entire tax year. If your divorce was finalized by December 31, 2025, you’ll file as “Single” or “Head of Household” for your 2025 taxes. If your divorce finalizes any time in 2026, you’re still considered married for 2025 tax purposes.
Head of Household Status
If you have children, filing as “Head of Household” typically provides better tax benefits than filing as “Single.” To qualify, you must:
- Be unmarried or considered unmarried on the last day of the tax year
- Pay more than half the cost of keeping up a home for the year
- Have a qualifying child who lived with you for more than half the year
In Arkansas custody arrangements, the parent with primary physical custody typically claims Head of Household status. However, this should be specifically addressed in your divorce decree to avoid conflicts.
Alimony and Spousal Support: Major Tax Changes
Important: Federal tax law changed dramatically in 2019, affecting how alimony is taxed.
For Divorces Finalized After December 31, 2018:
- Alimony is NO LONGER tax-deductible for the paying spouse
- Alimony is NO LONGER taxable income for the receiving spouse
This represents a significant shift from prior law. If your divorce was finalized before 2019, the old rules still apply (deductible for payer, taxable for recipient) unless you specifically modify your agreement to adopt the new tax treatment.
Arkansas Alimony Considerations
Arkansas courts consider multiple factors when awarding alimony, including the tax consequences to both parties. Because alimony is no longer deductible, courts may adjust the amount to account for the paying spouse’s higher after-tax cost.
If you’re negotiating alimony in 2026, work with your attorney to model the true after-tax impact of different payment scenarios.
Child Support: Not Taxable
Child support payments are never tax-deductible for the paying parent and never taxable income for the receiving parent. This has always been the law and remains unchanged.
However, child support does interact with other tax issues:
Dependency Exemptions and Tax Credits
Even though child support isn’t taxed, the parent who pays support doesn’t automatically get to claim the child as a dependent. Generally, the custodial parent (the one with whom the child lives for more nights during the year) claims the child.
However, Arkansas divorce decrees can and should specify:
- Who claims the child as a dependent
- Who claims the Child Tax Credit (worth up to $2,000 per child in 2026)
- Whether the Earned Income Tax Credit applies
- Whether the Child and Dependent Care Credit applies
These credits are valuable and should be negotiated as part of your settlement. Sometimes parents alternate years, or the credit is given to the non-custodial parent in exchange for other concessions.
Form 8332: Releasing the Exemption
If the custodial parent agrees to let the non-custodial parent claim the child, they must sign IRS Form 8332 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent). This form should be attached to the non-custodial parent’s tax return.
Your divorce decree alone isn’t enough—you must have the signed form.
Property Division and Taxes
Arkansas follows “equitable distribution” for property division in divorce. Understanding the tax basis of assets you’re dividing is crucial to ensuring a truly fair split.
The Tax-Free Transfer Rule
When property is transferred between spouses incident to divorce, it’s generally not a taxable event. The receiving spouse takes over the original “basis” in the property for future tax purposes.
Example: If your spouse purchased stock for $10,000 and it’s now worth $50,000, when you receive it in the divorce, your basis is still $10,000. If you later sell it for $50,000, you’ll owe capital gains tax on the $40,000 gain.
Assets Are Not All Equal
$100,000 in a retirement account is NOT the same as $100,000 in home equity. Consider:
- Retirement accounts (401(k), IRA): Taxed at ordinary income rates when withdrawn
- Home equity: Often partially or fully tax-free under the $250,000 capital gains exclusion
- Investment accounts: Taxed at capital gains rates (usually lower than ordinary income)
- Cash: No tax consequences
Your divorce attorney should work with a CPA or financial advisor to calculate the true after-tax value of each asset you’re dividing.
The Home Sale Exclusion
If you’re selling the marital home as part of the divorce, you may qualify for the capital gains exclusion of up to $250,000 per person ($500,000 if filing jointly). To qualify:
- You must have owned the home for at least 2 years
- You must have lived in it as your primary residence for at least 2 of the last 5 years
Timing the sale and understanding who qualifies for the exclusion can save tens of thousands in taxes.
Retirement Accounts and QDROs
Dividing retirement accounts in divorce requires special handling to avoid taxes and penalties.
What is a QDRO?
A Qualified Domestic Relations Order (QDRO) is a court order that allows retirement funds to be transferred from one spouse to another without triggering:
- Income taxes
- Early withdrawal penalties (typically 10% if you’re under 59½)
Without a properly drafted QDRO, the account owner would owe income taxes and penalties on funds transferred to their ex-spouse—a devastating and avoidable mistake.
Arkansas QDRO Requirements
In Arkansas, QDROs must be approved by both the divorce court and the retirement plan administrator. This process can take several months, so it’s critical to start early.
If you’re receiving retirement funds via QDRO, you have options:
- Roll them into your own IRA (no taxes due now)
- Take the cash (you’ll pay income tax but no early withdrawal penalty)
Your divorce attorney should work with a QDRO specialist to draft the order correctly.
Tax Return Issues During and After Divorce
Who Claims What in the Year of Divorce?
If you’re still married on December 31st, you can file jointly or separately. Generally, filing jointly results in lower taxes, but it also means you’re both liable for any taxes due—or any audit issues.
If you file jointly and later discover your spouse underreported income or took improper deductions, you could be on the hook. However, innocent spouse relief may be available if you can prove you didn’t know about the problem.
Dividing Tax Refunds or Liabilities
Your divorce decree should address:
- How tax refunds for the current year will be divided
- Who is responsible for any tax liabilities
- Whether you’ll file jointly for the year of divorce
Get this in writing. Don’t rely on verbal agreements.
Estate Planning and Tax Implications
Once your divorce is final, immediately update:
- Beneficiaries on retirement accounts, life insurance, and bank accounts
- Your will (in Arkansas, divorce automatically revokes provisions for your ex-spouse, but update it anyway)
- Powers of attorney and healthcare directives
Failing to update beneficiaries can result in your ex-spouse inheriting assets you intended for your children or other loved ones—and it happens more often than you’d think.
Working with Tax Professionals During Divorce
Divorce has complicated tax implications that your family law attorney may not be equipped to fully address. We recommend:
- Consult a CPA or tax attorney before finalizing your settlement
- Model different scenarios to understand the true after-tax value of proposed settlements
- Coordinate between your divorce attorney and tax advisor to ensure nothing falls through the cracks
The money you spend on good tax advice during divorce can save you many times that amount in the years that follow.
Common Arkansas Divorce Tax Mistakes
Over our years of practice, we’ve seen these costly mistakes repeatedly:
- Not addressing tax filing status and exemptions in the decree – This leads to annual arguments and potential IRS conflicts
- Failing to obtain a proper QDRO – Results in massive tax bills and penalties
- Ignoring the tax basis of assets – Leads to unfair property division
- Not planning for estimated taxes post-divorce – Suddenly you’re not withholding enough
- Forgetting to update beneficiaries – Your ex inherits your 401(k)
How Mann & Kemp Can Help
At Mann & Kemp, we understand that divorce is about more than just ending a marriage—it’s about securing your financial future. We work closely with financial professionals to ensure our clients understand the tax implications of every decision.
Whether you’re just beginning to consider divorce or you’re in the middle of negotiations, we can help you:
- Understand how divorce will affect your tax situation
- Structure settlements to minimize tax consequences
- Draft divorce decrees that clearly address tax issues
- Coordinate with CPAs and financial advisors on complex cases
- Obtain QDROs for retirement account division
Take the Next Step
If you’re facing divorce in Arkansas and have questions about the tax implications, we’re here to help. Contact Mann & Kemp today to schedule a consultation with an experienced Arkansas divorce attorney.
Call our office or request an appointment to discuss your specific situation.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws change frequently, and your specific situation may differ. Consult with a qualified attorney and tax professional regarding your individual circumstances.
About the Author: The attorneys at Mann & Kemp PLLC have extensive experience handling complex divorce cases in Arkansas, including high-asset divorces with significant tax implications. We represent clients throughout Arkansas in family law matters.