In general, legal fees for a divorce are tax-deductible to the extent that they exceed 2% of a taxpayer’s adjusted gross income, and then only if related to tax advice or incurred to generate spousal support or to collect arrears. Legal fees to collect child support are not deductible. Your attorney must prepare separate bills for deductible charges and non-deductible charges pursuant to Internal Revenue Code Section 212.
I.R.C. Code § 212 (26 U.S.C. § 212) provides a deduction, for U.S. federal income tax purposes, for expenses incurred in investment activities. Taxpayers are allowed to deduct “all the ordinary and necessary expenses paid or incurred during the taxable year--
- For the production or collection of income;
- For the management, conservation, or maintenance of property held for the production of income; or
- In connection with the determination, collection, or refund of any tax."
The fees for obtaining or protecting capital assets in a divorce can be added to the tax basis of the property. Business interest, securities, and real estate are examples of capital assets.
In general, only fees paid to one’s own attorney may be tax-deductible, not those paid to one’s spouse’s attorney. The tax laws in connection with divorce are complex and most divorce attorneys will not give tax advice. This could make them responsible for penalties to the IRS and make them responsible to their client for any incorrect advice that they give relating to the deductibility of legal fees.