(2023) Are divorce costs tax deductible?

The costs of a divorce, particularly legal and court costs, were deductible as extraordinary expenses of a general nature under § 33 EStG until 2012. More precisely, only the expenses for the actual divorce proceedings and pension rights adjustment were deductible, not for ancillary divorce matters outside the compulsory joint proceedings. This includes disputes over joint assets, arrangements for spousal and child maintenance, and decisions on parental access and custody rights.

However, since 2013, divorce costs are no longer deductible as extraordinary expenses due to a change in the law and a clarifying BFH ruling. "A taxpayer does not regularly incur expenses for divorce proceedings to secure their livelihood and essential needs" (BFH ruling of 18.5.2017, VI R 9/16).

• Due to a change in the law in 2013, expenses for legal proceedings (litigation costs) are generally excluded from deduction as extraordinary expenses. The prohibition on deduction does not apply "if the taxpayer would risk losing their livelihood and being unable to meet their essential needs in the usual manner without the expenses" (§ 33 para. 2 sentence 4 EStG).
• According to the BFH, the costs of divorce proceedings are not regularly incurred to secure the livelihood and essential needs. This can only be assumed if the taxpayer's economic livelihood is threatened. Such an existential impact does not apply to divorce costs, even if remaining in the marriage would significantly impair the taxpayer's life.
• Since 2013, the official instructions for the income tax return state: "Legal costs are no longer deductible as extraordinary expenses from 2013... The prohibition on deduction also applies to the costs of divorce/dissolution of a civil partnership."

Under the new legal situation since 2013, legal costs related to a divorce are no longer tax-deductible: neither for ancillary divorce matters, e.g. post-marital maintenance, child matters, equalisation of accrued gains and asset disputes (as before), nor for the actual divorce proceedings including pension rights adjustment.

BUT: The Münster Finance Court recently ruled that legal costs to obtain post-marital maintenance are deductible as income-related expenses if the maintenance recipient taxes the maintenance payments as other income under § 22 No. 1a EStG (FG Münster of 3.12.2019, 1 K 494/18 E).

The case: The claimant and her now ex-husband separated in 2012. They conducted family court proceedings at the district court, which included the divorce, pension rights adjustment, and post-marital maintenance. In 2014, the marriage was dissolved by court order, and the claimant's former husband was ordered to make monthly maintenance payments. The woman sued for higher monthly payments against the district court's decision. In 2015, a court settlement was reached regarding the maintenance amount. In her 2015 income tax return, the claimant declared other income in the amount of the maintenance payments received and claimed the legal costs (court and legal fees) as tax-reducing. The tax office refused to consider them.

The judges believe that the legal costs should be considered as income-related expenses for the maintenance recipient because she taxed the maintenance payments from her ex-husband under § 22 No. 1a EStG. The woman incurred the legal costs to receive (higher) income in the form of maintenance payments in the future. The maintenance payments are to be treated as taxable income under § 22 No. 1a EStG because the ex-husband, as the payer, had the option to deduct his maintenance payments as special expenses under § 10 para. 1a EStG, known as real splitting. The maintenance payments are thus fully equated with other income. Consequently, a full deduction of income-related expenses must also be possible.