Taxes And Divorce
Divorce is often a time of financial strain and confusion. Despite your circumstances, the government will still expect that you file your taxes promptly and correctly. You will need to be prepared to make decisions about tax money you owed before, during or after your divorce. It is to both partners’ benefit to clearly state in your agreement who is responsible for what when it comes to taxes. As the manager of your divorce and finances, it is usually in your best interest to have a tax advisor review your agreement to make sure issues related to taxes are laid out clearly and will hold up under legal scrutiny.
Here are some tips for handling divorce and the IRS:
- You and your partner want to consider whether or not it is to your benefit to file “married — filing jointly” or “married-filing separately.” Work up an estimate of the financial ramifications for each and decide with your spouse what is better for you. Note that if you are not yet divorced in the tax year you are filing for, then you can still file jointly. If your divorce is finalized on or before December 31 of that year, then, according to the IRS, you are considered unmarried for the entire year. This is a fact you may want to consider when planning the timing of your divorce.
- You and your spouse can continue to file joint tax returns even after you are separated and have filed for divorce. However, if you singed a joint tax return that is fraudulent you are liable for the money owed unless you can show you were an “innocent spouse.” An innocent spouse is someone who trustfully signs a joint tax return not knowing that something on the return is incorrect. This is very difficult to prove. You can get more information on rules and regulations relating to “innocent spouse” tax relief by logging on to www.irs.gov and looking for Publication 971.
- Realize that taxes play a large role in property distribution; from the house to investments to child support. The IRS decides how alimony, child support and property distribution are reported. Don’t wait until April 14th to find out that your settlement has a huge impact on the filing of your taxes. Read IRS Publication 504, “Divorced or Separated Individuals“. This document will give you the information and tips you need to make wise decisions in your divorce process. It also tells you how you may be relieved of liability in joint returns and what divorce-related expenses may be tax deductible. Call 1-800-829-3676 to get a printed copy of this document.
- Overall, it is important to educate yourself in order to make the best possible decisions. Don’t forget that laws around taxes and marriage/divorce do change. Use a financial professional, reference books or the World Wide Web to make sure you understand the situation and possible outcomes. Take some time to educate yourself even if you are using a financial or legal professional to handle the tax aspect of your divorce.