Divorce and taxes in Colorado: the 2026 rules, worked in numbers.

Joint, separate, or considered unmarried.

Married on December 31 means joint or separate returns, unless a parent is “considered unmarried” and files as head of household.

Joint. Usually the lowest combined tax, and the most dangerous signature in the case: the liability is joint and several (§ 6013(d)(3)), and Colorado holds both spouses liable for the full amount even if a later decree says otherwise. The Colorado return must match the federal choice.

Separate. Higher rates for most couples, half the AMT exemption, generally no child-care credit unless the spouses lived apart, no earned income credit unless the separated-spouse rule applies, and no standard deduction if the other spouse itemizes. For 2026, also no $6,000 senior deduction, a $20,200 state-and-local-tax cap instead of $40,400, and no premium tax credit, with exceptions for abuse and abandonment.

Considered unmarried. A married parent may file as head of household only if every element is met (§ 7703(b)): a separate return; a home that for more than half the year was the principal home of a child the parent can claim (or could, but for a signed release); more than half the cost of that home paid by the parent; and the other spouse absent for the entire last six months of the year. A spouse who moves out in July misses it for that year.

Head of household, and split nights. The status needs an unmarried (or considered unmarried) parent paying more than half the cost of a home that was a qualifying child’s principal home for more than half the year (§ 2(b)), and a Form 8332 cannot move it. With one child, the parent with more nights qualifies; on exactly equal nights the parent with the higher adjusted gross income is treated as custodial. With two or more, each parent can qualify through a different child. Nights actually spent control, not labels.

The release: signed, unconditional, one year at a time.

Only the custodial parent’s signed, unconditional release, usually Form 8332, moves the child to the other parent’s return.

The rule. For parents who are divorced, separated, or apart for the last six months of the year, with the child in their custody for more than half the year, the child is treated as the noncustodial parent’s if the custodial parent signs a written declaration not to claim the child and the other parent attaches it (§ 152(e)). A release conditioned on anything, including payment of support, is not unconditional, and a decree or separation agreement cannot serve as the release. A revocation works no earlier than the year after notice.

How I draft it. The form must be unconditional; the court’s order to deliver it need not be. The decree requires a one-year Form 8332, delivered by a set date each year, if that year’s support was paid.

The child-care credit, rebuilt for 2026.

Only the parent the child lives with may claim it, at 50 percent stepping down to 35 and 20 as income rises.

From 2026 the rate is 50 percent, reduced (not below 35 percent) by one point per $2,000 of AGI over $15,000, then (not below 20 percent) by one point per $2,000 ($4,000 joint) over $75,000 ($150,000 joint), on expenses up to $3,000 for one child or $6,000 for two or more, less any dependent-care FSA exclusion (now up to $7,500). It is nonrefundable. On the Colorado worksheet the credit is subtracted from actual child-care costs (C.R.S. § 14-10-115(9)(b)), so a bigger credit leaves less to share.

How Colorado accounts for the lost deduction.

Not on the state return; in the guideline amount and on the child support worksheet.

The state return. No adjustment. Colorado taxable income starts from federal taxable income (C.R.S. § 39-22-104): a pre-2019 deduction flows through, and post-2018 maintenance is neither deducted nor included.

The guideline. For a marriage of three years or more and combined income of $240,000 a year or less, the advisory amount is 40 percent of the parties’ combined monthly adjusted gross income minus the lower earner’s, then 80 percent of that where combined monthly income is $10,000 or less, and 75 percent where it is over $10,000 and not over $20,000 (C.R.S. § 14-10-114(3)(b)(I)).

The child support worksheet. Nondeductible maintenance paid between the parents is multiplied by 1.25 where their combined monthly adjusted gross income is $10,000 or less, or by 1.33 above that, then subtracted from the payor’s income and added to the recipient’s (C.R.S. § 14-10-115(3)(a)(II); C.R.S. § 14-10-115(5)(a)(I.5)). The multiplier is a rebuttable presumption.

Older orders. The 2017 act is not itself a substantial and continuing change of circumstances for modifying an order entered before it took effect (C.R.S. § 14-10-114(5)(c)). A modification that adopts the new tax treatment must say so expressly.

Will the court tax-affect? Only on evidence.

Discretionary, and refused when the tax depends on a sale or withdrawal nobody has shown will happen.

A trial court may, in its discretion, consider tax consequences; the central question is whether the property will actually be sold (In re Marriage of Finer, 920 P.2d 325 (Colo. App. 1996)). In re Marriage of Bayer, 687 P.2d 537 (Colo. App. 1984) refused a reduction for the tax on an early withdrawal that rested on hypothetical actions wholly within the husband’s control; in In re Marriage of Grubb, 721 P.2d 1194 (Colo. App. 1986), rev’d on other grounds, 745 P.2d 661 (Colo. 1987) the tax on a pension was speculative. No Colorado rule requires tax-affecting.

At a hearing it is won with evidence of an imminent sale, a withdrawal the spouse must make to live, or mismatched currencies, proved with a rate. In a settlement every asset is priced after tax, because the spouses know who will sell what and when.

The tests, and the three divorce rules.

Two of five years owned and used; $500,000 only jointly; use under the decree counts for the spouse who left.

The joint $500,000. On a joint return, if either spouse meets the ownership test, both meet the use test, and neither used the exclusion in the prior two years (§ 121(b)). After the divorce each former spouse has $250,000, and only by meeting the tests.

Ownership tacks; use under the decree counts. A spouse who receives the house counts the transferor’s ownership (§ 121(d)(3)(A)), but use is personal. A spouse is treated as using the house during any period of ownership while the other spouse or former spouse is granted use of it under a divorce or separation instrument (§ 121(d)(3)(B)). One sentence granting use keeps the absent owner’s exclusion alive.

Partial exclusion. The IRS treats divorce or legal separation as an unforeseeable event, so a forced early sale may qualify for a partial exclusion (Pub. 523).

The QDRO, the penalty exception, and the IRA trap.

Under a QDRO the former spouse is taxed but owes no penalty; roll to an IRA first and the penalty is back.

Who is taxed. A spouse or former spouse who is the alternate payee under a qualified domestic relations order is treated as the distributee and pays the tax (§ 402(e)(1)(A)); a payment to a child is taxed to the participant. Governmental, church and 457(b) plan payments under a domestic relations order are treated the same way (§ 414(p)(11)), which reaches PERA, the Thrift Savings Plan and FERS.

The penalty exception. A distribution to an alternate payee under a QDRO is exempt from the 10 percent additional tax (§ 72(t)(2)(C)), but not a distribution from an IRA (§ 72(t)(3)(A)).

IRAs move by the decree. An IRA transferred to a spouse or former spouse under a divorce or separation instrument is not a taxable transfer (§ 408(d)(6)). The instrument named is a decree or a written instrument incident to one, so the transfer is made after the decree, not under temporary orders, by retitling or a trustee-to-trustee transfer (Pub. 590-A). An IRA divided by withdrawal is taxed to the owner who withdrew it.

Roth records, and abuse. How the Roth five-year clock runs after a divorce transfer is not squarely settled; keep the original owner’s records. Under SECURE 2.0 a victim of domestic abuse by a spouse, including economic abuse, may take a penalty-free distribution within a year, limited to $10,000 (indexed) or half the vested balance, and repay it (§ 72(t)(2)(K)); defined benefit plans are excluded.

Brokerage accounts: divide the lots, not the total.

Character sets the rate; basis carries over, so each lot is divided in kind.

Character. Interest, non-qualified dividends and short-term gains are ordinary income. Qualified dividends and gains on assets held more than a year are taxed at 0, 15 or 20 percent: in 2026, 0 percent on taxable income up to $49,450 single, $66,200 head of household and $98,900 joint; 15 percent up to $545,500, $579,600 and $613,700; 20 percent above. The 3.8 percent net investment income tax reaches the lesser of investment income or modified AGI over $200,000 (single or head of household), $250,000 (joint) or $125,000 (separate).

Basis and lots. Basis and holding period carry over. Adequately identified shares are sold at their own basis; otherwise the first bought are the first sold (Pub. 550). I divide an account in kind, lot by lot, so each spouse takes a proportional share of high-basis and low-basis lots. A loss is disallowed as a wash sale if the seller’s spouse buys substantially identical stock inside the window, and loss carryforwards from joint years follow the spouse whose sales produced them; the agreement lists them.

For support. Unrealized gains in an investment account are not income (In re Marriage of Schaefer, 2022 COA 112), and for property received in the division only later appreciation counts (In re Marriage of Upson, 991 P.2d 341 (Colo. App. 1999)).

Equity compensation: taxed to whoever holds it when it pays.

Transferred options and deferred pay are taxed to the former spouse when exercised or paid.

The events. Nonqualified options (NSOs) are ordinary income at exercise (§ 83); incentive stock options (ISOs) produce no regular tax at exercise but an alternative-minimum-tax preference; restricted stock units (RSUs) are ordinary income at vesting.

The transfer. Under Revenue Ruling 2002-22, an employee who transfers nonstatutory options or nonqualified deferred compensation to a former spouse incident to divorce includes nothing on the transfer; the former spouse includes the income on exercise or payment. Social Security and Medicare tax stay with the employee spouse (Rev. Rul. 2004-60). An ISO transferred in a divorce stops being a statutory option that day (Treas. Reg. § 1.421-1(b)(2)).

Colorado. An option granted for past services may be marital when granted; one for future services becomes marital as the services are performed (In re Marriage of Miller, 915 P.2d 1314 (Colo. 1996)). Equity Compensation works the grants one by one.