Divorced 2-5 Years Ago: Ongoing Tax Planning

Several years after finalization, your focus shifts from immediate filing issues to optimizing property basis tracking and potential alimony modifications affecting your tax picture.

Ongoing alimony payments. If you're paying or receiving alimony under a post-2018 agreement, the payments have no tax effect for either party. But if your agreement predates 2019, the payer still deducts and the recipient still reports the income. Either way, a CPA should verify your return matches the agreement terms -- the IRS cross-references alimony reported by both parties.

QDRO distributions hitting now. Retirement accounts split through a QDRO during the divorce may now be generating distributions. These are taxable income to the recipient spouse. If you rolled QDRO funds into your own IRA, required minimum distribution rules apply based on your own age and circumstances.

Basis tracking on transferred assets. This is where problems surface. If you're selling a home, investments, or other property received in the divorce, the cost basis is your ex-spouse's original purchase price -- not the value when you received it. People routinely overstate their basis and underreport gains because they never obtained the original records.

The tradeoff: Two to five years out, most divorce-related tax work is maintenance, not crisis management. But the basis tracking issue alone can cost thousands if handled incorrectly on a property sale.