Common Tax Issues to Consider During Divorce

DuPage County Divorce Lawyers

Tax season is here, and for many Americans, it brings questions, scrambles to make last-minute contributions, and anticipation of tax refunds. Married couples enjoy the benefit of filing their taxes jointly, and if you are in the process of ending your marriage, you might find yourself feeling lost at the prospect of filing singly for the first time in years. Below are a few common questions that divorcing couples have about tax season. The answers given are general advice; they cannot replace the value of a one-on-one discussion about the specific issues present in your marriage and divorce with your accountant or divorce lawyer.

Should We File Jointly or Separately?

If you were not yet divorced by December 31 of last year, you have the option to file your tax returns as a married couple or as two single filers. Filing jointly has numerous benefits, such as a greater deduction limit and certain tax credits, but it is not always the ideal solution. When a couple cannot work together amicably, it is less stressful for the former partners to file singly. When a couple files jointly, they are both liable for any interest, penalties, and deficiencies attached to the return. This, too, may be a reason to file your return singly. If you do file your tax return jointly, and you find yourself facing penalties for errors your spouse made or attempts to collect tax liabilities that your spouse incurred, you can separate your liability from your former partner through one of the three types of relief offered by the IRS:

• Innocent Spouse Relief;
• Separation of Liability Relief; and
• Equitable Relief.

The Tax Burdens of Child Support and Spousal Maintenance

For divorces finalized before December 31, 2018, spousal maintenance payments may be deducted from your taxable income. Conversely, if you receive spousal maintenance from a former spouse, and your divorce was finalized before December 31, 2018, you must report the money you receive as income. This can be an important issue to consider when determining whether to file for divorce before or after the new year.

Child support, on the other hand, is not tax-deductible for the paying spouse or considered taxable income for the receiving spouse. For divorces which are finalized on January 1, 2019 or any subsequent date, spousal maintenance will be taxed the same as child support.

Determine Which Parent Will Claim the Children as Dependents

If you file your taxes separately, only one parent may claim your children as dependents. Generally, this is the parent who has more than half of the child's parenting time. However, this is not always the case – you can include a clause in your divorce settlement agreement that designates one parent as the parent who may claim the children as dependents on future tax returns regardless of that parent's share of the parenting time.

If the parent who is typically entitled to claim his or her children as dependents opts to grant the other parent this right, he or she may do so by filing Form 8332. Both parents must file this form with their tax returns.

Considering Tax Burdens when Dividing your Property

When your property is divided, the court considers the tax obligations that each partner will face with his or her share of the assets. If you have one or more retirement accounts that may be divided through Qualified Domestic Relations Orders (QDROs), consider the tax burdens that will accompany each newly-created account following the order.

Other assets, like real estate properties, also come with tax obligations that must be considered when dividing a couple's property during their divorce. Talk to your lawyer about the tax obligations you might face in the future depending on how your property is divided.

Work With an Experienced Naperville Divorce Attorney

If you are considering filing for divorce, first speak with an experienced divorce attorney to determine the right time to file and find the right solutions for the specific issues you might be facing. To learn more, contact our team of experienced DuPage County divorce attorneys at Pesce Law Group, P.C. today to set up your initial consultation. We are here to make the divorce process as straightforward as possible for you. Let us answer your questions and advise you through each step of the way.