This is a two part blog series regarding Taxes and Divorce. This first blog will address several tax related issues to keep in mind while your divorce is pending.
The New Year marks the beginning of tax season for most Americans. Individuals are gathering up their financial documents in preparation to file their taxes. Often clients are stumped when it comes to how they should file their taxes when they are separated from their spouse but not yet legally divorced. While a tax professional should be consulted, there are some basic things divorcing couples should keep in mind when filing their taxes.
First, KNOW THE PROS AND CONS OF YOUR FILING STATUS. Typically an individual's tax burden is lessened when filing jointly. However, you should keep in mind that if you are filing jointly both individuals are on the hook for any tax deficiencies. The IRS does provide avenues for a spouse that files jointly but needs to be "relieved" of IRS penalties. Moreover, both individuals can file as "married filing separately." Again, it is vital that you speak with a trained tax professional that can discuss the potential benefits and draw back of each filing status. My main take away here, and to my clients, is research your options prior to filing.
Second, PROTECT YOURSELF. Regardless of your filing status it is important to address tax benefits and burdens/penalties in your separation agreement. What happens to the refund? On the flip side what happens if there is a tax penalty? Who receives the return and who pays? By discussing and agreeing to the various scenarios in your separation agreement (or divorce decree) you can allocate how a benefit will be distributed and who will be responsible for any money owed. This will save you and your ex a huge headache down the road.
Third, COMMUNICATE YOUR INTENTIONS. Please note that when a divorce is pending but not finalized a spouse may sign the other spouse's name. Original signatures by both parties is typically not required. Under the law the two individuals are still married. That being said if you do not wish to file jointly it is imperative that you document this. Ideally, once you consult with a divorce attorney your unique tax decisions should be reduced to writing and communicated with opposing counsel or spouse. This is also applicable to any potential deductions that you and your spouse may be eligible for. Part Two of this blog series will discuss potential tax deductions including claiming children dependents.
If you have questions regarding divorce or are ready to begin the process our office is here to help. Our experienced divorce attorney is able to answer any questions you may have about a divorce's impact on your taxes and finances. When you are ready please contact our office at 859-982-9557 or [email protected]