As if divorce weren’t stressful enough, there is an entire array of tax implications to consider regarding your divorce. You may be confused about how your divorce will impact your taxes, and if tax season is fast approaching, overwhelmed and uncertain of the tax decisions you must make quickly. It is extremely important that you discuss these issues with your divorce attorney; he or she can give you some sound advice, and if your case is particularly complex, can recommend a tax accountant or other professional to help you make these difficult decisions. The attorneys of The Law Place have an extensive knowledge of how divorce impacts your taxes and want to ensure you don’t end up paying taxes you should not be responsible for.
Some of the questions you may have include the following:
• Will I file jointly or individually? In order to determine the answer to this question, you must think December 31st. Your marital status as of December 31st of the prior year is what the IRS considers. In fact, married couples who gain benefits from filing jointly may actually wait until after December 31st to file for divorce. If tax time arrives while you are in the throes of your divorce, your question may be whether to file as “married filing jointly,” or “married filing separately.” If you have any inkling that your spouse may be less-than-truthful on the current tax return, you should file as married filing separately in order to avoid being associated with such fraud. Another consideration is that, should you file jointly and owe taxes, if your spouse is awarded that debt in the divorce and fails to pay, you will be responsible for the debt.
• If you were divorced by December 31st, you may wonder whether to file as “single” or “head of household.” If you have primary custody of the children, you may be able to file as head of household and garner some tax perks in the process. According to the IRS, unmarried persons may be able to file as Head of Household when they meet all the following requirements:
1. You are unmarried and are filing your own tax return with a qualifying child
2. You paid more than half the costs of maintaining your home during the tax year.
3. Your home was the main residence of your child, stepchild or foster child for more than half the year.
4. If you are the non-custodial parent, you may be given an exemption for a child under your divorce agreement, however that alone will not qualify you as Head of Household.
4. If your divorce is not yet finalized, the dependency exemption becomes even
more complicated. Your divorce attorney may be able to have a clause included in your settlement which clearly states which spouse will benefit from the dependency exemption.
• If you and your spouse have a considerable amount of assets to divide, then you will also have to consider which spouse will get the mortgage and property deductions. Generally, the spouse who purchased the equity of the marital home from the other will be allowed to take those particular tax deductions.
• If you pay spousal support, you are allowed to deduct that amount from your stated income; if you receive spousal support, you must claim that amount as income on your return.
• If you are paying child support, those payments are not tax deductible, and if you are receiving child support you are not required to claim the support as income.
• If you or your spouse is liquidating a 401(k) retirement account or an IRA, any income gained will be taxed unless a valid Qualified Domestic Relations Order is in place which might allow you to avoid some of the tax consequences.
Spending a little extra time in determining where you will stand on your taxes after the divorce is finalized is well-worth the effort. The lawyers of The Law Place have dealt with tax issues related to divorce many, many times and are well-qualified to give advice tailored to your individual situation.