It's Tax Season, Many Clients Are Wondering..... Are My Legal Expenses Deductible

There are certain circumstances under which a divorcing individual may be able to deduct a portion of divorce legal expenses.  When the legal fees are allocable to tax advice in connection with a divorce or separation, as well as for legal fees to obtain taxable spousal support, they may be tax deductible.  Here are some guidelines in regard to this issue:

The portion of legal fees specifically paid (usually by the wife) to obtain an award of taxable spousal support can be included with the spousal support recipient’s other itemized deductibles on Schedule A of Form 1040 on the "other expenses" line.  An individual may deduct the legal fees incurred to obtain an award of taxable spousal support in the original divorce proceeding, as well as any subsequent proceeding to increase the spousal support award or to collect any spousal support arrearages.

Legal fees, as with most other miscellaneous deductions are allowable only to the extent that their total in any one year exceeds two percent of the tax payers adjusted gross income (AGI).

For example, when a taxpayer with an AGI of $100,000 has miscellaneous deductions of $10,000, the two percent floor shrinks the deduction to just $8,000—which is the amount left after the $10,000 is offset by $2,000, which is two percent of $100,000.

Legal fees incurred for child support modification and/or collection actions cannot be tax deductible nor are legal fees incurred to obtain and/or enforce property division settlements. 

A taxpayer may deduct legal fees incurred for tax research and advice on such items as property transfers and dependency exemptions for the children, subject to the two percent benchmark for miscellaneous expenses.  The legal fee bill must specify in a reasonable way how much of the attorney fees incurred were for tax counseling.  The deduction is allowed only for advice on your own tax problems, not for payment of your spouse’s or ex-spouse’s attorney fees.

Always remind your attorney to prepare a bill that breaks down deductible and nondeductible charges so that you can substantiate your deduction in the event of an audit.   

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