Though April 15th has come and gone, many divorcing couples filed for a tax extension because they were unsure of the tax consequences of their divorce. Even if they didn’t file for an extension, many couples are unaware of the impact divorce can have on their taxes. Just as marriage brings certain changes to your taxes, divorce will also affect your taxes in a number of ways.
Filing Status
When married couples file their taxes, they have the option of filing “married filing jointly” or “married filing separately.” Many couples choose to file jointly in order to reap the tax benefits associated with this status. If your divorce was not final as of the last day of the calendar year (December 31st), you still have the option of filing your taxes jointly or separately. Though a complaint for divorce may have already been filed in court, until the divorce is final couples have the option of filing together or separate. However, before deciding to file jointly and take advantage of any tax breaks for another year, you should weigh the pros and cons of this decision with your attorney.
In order to file your taxes jointly, you and your spouse need to cooperate and share important documents and information. Divorce can be highly contentious and there may be distrust between you and your partner, in which case you may not feel comfortable filing together. Similarly, it may be advantageous for you or your spouse to file separately so that the other person incurs a big tax hit. This is why taxes can be used as a bargaining tool in divorce.
Before deciding to file separately or jointly, you should consult your attorney or tax professional so you understand all the consequences of filing one way or the other. In addition, because any tax refund will not arrive until months after you file your taxes, you should include specific instructions in your divorce settlement on how the money refunded will be distributed to you and/or your spouse. Likewise, your divorce settlement should address any tax obligation that may result from your tax filing.
Other Income and Deductions
Divorce can also affect your amount of income and eligibility for deductions due to the splitting of marital assets. Mortgage interest paid by you or your spouse can be divided or may be completely eliminated. If you and your spouse have any other assets, such as rental properties, the tax consequences will follow whoever retains the property after divorce.
Alimony, or spousal support, will impact your taxes as well. Generally, if you receive spousal support payments, this money is considered income and is therefore taxable. The amount of spousal support paid by your former spouse is deductible on his/her tax return. Unlike spousal support, however, child support is neither taxable nor deductible.
There are a number of tax issues and financial considerations to be aware of during a divorce. If you are currently going through a dissolution of marriage action or are considering divorce, the family law attorneys at DiPietro Law Group, PLLC are here for you. Call us today at (888) 530-4374 for a consultation.
