How to File Taxes in the Middle of a Divorce

Tax season is in full swing, and filing can be difficult even when you aren’t going through a divorce. So how do couples file when they’re right in the middle of separating? That depends on a few different things; here are some tips on how to navigate this tricky tax situation.

Double check when your divorce occurred.  December 31 of the year prior is the date by which you and your ex-partner will look to determine how to file for that tax year. If you didn’t divorce by this date, you are still considered married even if you no longer live together, etc, so you’re still required to file taxes as a married couple either jointly or separately. If you did obtain a court-ordered divorce decree by the December 31 deadline, then you are required to file as an individual or head of household if applicable.

Should we file jointly or separately if we’re still technically married? Many couples who are in the process of separating still choose to file jointly to save money. But before committing to a certain filing status, you should have your accountant run your taxes both jointly and separately to determine the best option. However, this can be tricky territory as the analysis is deeper than just looking at the potential tax liability. When you file jointly in the middle of a divorce, if your ex-partner doesn’t report income or earnings that you’re not aware of, the “innocent spouse” could end up liable to the IRS for paying any debts owed. If you suspect the other is lying, regardless of the tax liability, you may wish to file separately to avoid tax liability for underreporting income.

What happens if one of us wants to file jointly but the other doesn’t?  Filing jointly in many cases can save a couple money, but in the middle of a split, it can be a challenge for both parties to agree on finances. If one half of the couple wants to file jointly but the other doesn’t, and has no plausible reason for not doing so, this could result in more money owed to the IRS or a significantly smaller refund. If this happens, the party that wanted to file jointly can claim in court that there was a dissipation of assets (spending of marital funds or assets that does not benefit the marriage), as long as they are able to show the court what the benefit of filing jointly would have been.  

The best way to ensure your tax process goes as smoothly as possible, even in the middle of a divorce, is to fully understand your filing options. Working with an accountant or licensed tax professional can help alleviate stress and also ensure that there aren’t any critical mistakes made during the pendency of a divorce action.

, ,