Any divorce proceeding, contested or uncontested, and with or without children, is going to be be difficult in its own right without any additional financial considerations. Most people who are considering a divorce would clearly prefer not to deal with the aggravation of income tax questions, but that pesky date on the calendar – April 15 – is looming. Is it better to file for divorce first, before filing a federal income tax return, or is it better to deal with the income taxes first, prepare and file the return, and then focus on filing for divorce? Especially at this time of year – income tax season – it’s a question that’s routinely asked of divorce attorneys.
Of course, a divorce will have a substantial impact on anyone’s income taxes, so being aware of what to expect at tax time can help you sidestep any trouble with the Internal Revenue Service (IRS). It’s been said that there are always three parties in a divorce rather than two, and that the IRS is the third party. The sad truth is that too many people finalize a divorce without properly considering the income tax impact of the choices they’re making. In south Florida, let an experienced Boca Raton divorce attorney provide the specific legal advice that’s best for you personally regarding your income taxes and your divorce.
However, to answer the question of what’s better to do first – file your income tax return or file for divorce – the answer is the same for everyone, because it’s actually a moot question, at least for the current tax season. The IRS is interested only in your income and your marital status for 2015. If your divorce was final on the last day of 2015 – or on any other date in tht year – the IRS counts the entire year as a year that you were divorced. The sole exception is that some parents are allowed to claim a favorable “head of household” status that permits more deductions. To qualify for head of household status, you must have paid more than fifty percent of your housing costs for 2015, lived apart from your spouse for the final six months of 2015, and your dependent child had to reside in your home for more than half of the year.
EXEMPTIONS AND JOINT FILING
Obviously, claiming exemptions for your children will substantially reduce the final amount of the income taxes you pay. When ex-spouses can agree and put the agreement in writing, they can select which of them will receive the exemption for children. That decision can be worth as much as $1,300 in income tax savings. Alimony payments – now called “spousal support” or “spousal maintenance” payments in most states – are deductible for the ex-spouse making the payments and are classified as income for the ex-spouse receiving the spousal support payments. However, child support payments are not tax deductible and are not classified as income by the IRS.
You and your spouse may only file your federal income taxes jointly if you were still legally married on December 31, 2015 – and obviously, if you both agree to file jointly. If you were legally married on December 31 and you agree to file jointly, simply check the “married filing jointly” box as you would when you were married. A legal separation does not count – your divorce had to be legally finalized on or before December 31, 2015, or the IRS classifies you as married for the entire year of 2015. If your divorce was final on or before December 31, the filing status that you check will be “head of household” or “single.”
If you were still married on December 31 and you are now thinking about filing jointly, arrange first to consult with both your divorce attorney and with your tax advisor or financial advisor regarding the pros and cons of filing a joint return. Generally speaking, most persons will have their total tax payment reduced by filing jointly, depending on their incomes, deductions, and credits. You may also want to consider a tax indemnification agreement if you are filing jointly. If your spouse wants you to sign a joint tax return that he or she will prepare while the divorce is pending, try to obtain a tax indemnification agreement so that your spouse agrees not only to pay the tax due on his and her income for the year but also agrees to safeguard you from liability should the IRS or state tax authority later determine that more taxes are due. However, if taxes remain unpaid, you should be aware that the IRS may still attempt to go after either spouse. If that happens, obtain your divorce attorney’s advice.
If you are considering divorce or if your divorce is now pending, ask your divorce lawyer to see to it that your divorce settlement, judgment, or agreement – or a separate legal document – spells out precisely how you and your ex-spouse will deal with any tax refunds or liability if you file jointly. If you are looking for a refund check from the IRS, make sure that the check is payable to both of you, or get a written agreement that one spouse will pay the other whatever that other’s fair share is. If your refund is coming back as a direct deposit, have it sent to a joint account, or get a written agreement to protect yourself.
If you do not want your spouse or ex-spouse to handle your tax return, have your taxes done professionally, or just do the taxes yourself and file separately. No court will force you to file jointly if you choose to file your taxes separately. If you file separately and your divorce was not finalized at any time in 2015 – that is, if you were still married when 2015 ended – then check the filing status “married filing separately” or “head of household.” If your status is “head of household,” you may claim the standard deduction, the dependent care credit, and the earned income credit, and your taxes may be lower. To claim head of household status, you must satisfy these three criteria:
- You paid more than half of your household’s 2015 rent or mortgage payments, utilities, homeowners’ insurance, and groceries.
- Your home was the principal residence of your child, stepchild, or qualifying foster child for more than half of the year, and you can claim a dependent exemption.
- Your spouse did not live with you in the last six months of the year.
If your divorce was not finalized on or before December 31 last year and you file as head of household, your spouse’s status will be “married filing separately.” Subsequent to the divorce, you may still file as head of household if you pay for more than half of your household’s costs for the tax year and if your child or children live with you for more than six months of the year.
When you deal with the issue of alimony during a divorce proceeding, you must consider how alimony payments will impact your income taxes. As noted previously, alimony is deductible for the person who pays it and classified as income for the person who receives it. If you are receiving alimony payments, plan for the impact of those payments on your taxes. Alimony is income with nothing withheld, so you might consider avoiding a big tax hit by making quarterly income tax payments to the IRS or by raising the amount that is deducted from your paychecks. Payments for child support and for the distribution of jointly-owned marital property are not deductible and are not classified as income. The IRS scrutinizes spousal support payments made in the first three years subsequent to a divorce to ensure that you are not surreptitiously transferring nondeductible items – distributed property or other payments like legal fees – into alimony so that those payments appear to be deductible. A knowledgeable divorce lawyer can help you withstand the scrutiny of the IRS and help you handle the tax collectors if they have any questions after your divorce.
GET TRUSTWORTHY, EXPERIENCED HELP
Every marriage, every divorce, and every income tax situation is different, so you must get advice for you own circumstances from a divorce attorney you can trust. Whenever taxes are involved, a divorce is quickly going to get complicated. Divorces are never easy for anyone, and they almost never go smoothly. Even uncontested divorces can be emotionally painful and financially difficult for the divorcing spouses, but tax problems and tax worries need not add to your many other divorce difficulties.
If it’s time for you to retain the advice and services of a divorce attorney, make certain that the attorney you choose fully explains to you the effect of your divorce on your income tax situation. It’s only after a divorce is final that many people realize they gave up their rights – and their property – needlessly because they tried to divorce on their own or because they chose an untested attorney. Make the right choice. If you are divorcing in south Florida, or if you need legal advice and services regarding any matter of family law, contact an experienced Boca Raton divorce attorney. With April 15 rapidly approaching, make the call promptly.