Divorce and Taxes: One Certainty in an Uncertain Time

August 19, 2015

As many sages have said in the past, the only certainties in life are death and taxes. And unfortunately, there is no free pass on taxes during a divorce. Getting taxes completed on time generally requires organization and cooperation; this is especially true when a couple is filing taxes during divorce. Many issues involved in a divorce can be affected by a tax filing from alimony payments to liability on taxes owed. It is important to talk to a knowledgeable divorce attorney to work through these issues.

Depending on how well the couple can cooperate during a divorce, filing taxes might be a breeze or a nightmare. If one party is unwilling to cooperate with the other, either or both could face tax hurdles and might be forced to repay refunds and re-file taxes. Other persons in the midst of a divorce can get stuck on the filing status labels of “married filing jointly” and “single.” Even if it provides them with a financial advantage to choose the married filing jointly status, they may reject that status because of their feelings about their marriage and divorce.

To make the best of a difficult situation and to receive the highest refund for the family, it is generally best to choose the married filing jointly status, if possible. Even if a divorce was finalized during the last half of the year, formerly married tax filers can still claim the married filing jointly status for the tax year in which the divorce was finalized.

Dependency exemptions and Earned Income Tax Credit exemptions are another difficult issue in divorce. Typically, an order for dissolution of the marriage will spell out which parent can take the dependency exemptions for the children. Parties may agree that the parents will alternate the exemptions every year or that one parent will claim the exemption for one child and the other parent will claim the exemption for the other child. Unlike dependency exemptions, Earned Income Tax Credit (EITC) exemptions cannot be evenly split between the parties – special rules apply for divorced parents and generally, the child must live with the parent for more than half the year before the parent is eligible to claim the EITC exemption for that child.

In some situations, a tax filer may need to resort to the Injured Spouse Rule to receive a portion of a joint tax refund – married and soon-to-be divorced spouses can use this tool. Basically, if a joint tax refund is being garnished or taken because of one spouse’s liabilities, such as a garnishment for an unpaid federal student loan, the innocent spouse may apply to receive his or her half of the joint refund. The Innocent Spouse Rule can be used in several different situations so it is important to speak with an attorney that is knowledgeable about divorce and tax law for help.

Cooperation and organization are the best methods to follow when filing taxes with a soon-to-be ex-spouse. Tools such as spelling out dependent exemptions in divorce decrees and filing the injured spouse form can help avoid more acrimony and disputes during a stressful time. Talk with Jonathan D. Katz about your tax filing options during divorce to learn more.