In some cases, legal fees are deductible. For example, legal fees that are paid to pursue child or spousal support are deductible from the recipient spouse’s income.
The Income Tax Act specifically allows that for the purposes of determining taxable income, a person can deduct any legal and accounting fees (which the legislation collectively calls “professional fees”) that are incurred in the pursuit of a claim for child or spousal support. These professional fees must be deducted in the year during which they are paid. In this way, by deducting those professional fees from total income, the person receiving child/spousal support enjoys a reduced level of income tax liability. Legal fees incurred by the paying spouse or partner are not deductible.
However, there are many exceptions to this general rule, and in separation and divorce situations where many assets or child/spousal support payments are involved, it is always best to consult with a family lawyer who understands the intricacies of the tax implications in family law.