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What Are Some Tax Considerations During a Divorce?

Posted by Mariya Furman | Oct 26, 2022

When someone decides to get a divorce in California, there are often many questions concerning their taxes as they go through the divorce process. It's essential to plan and understand the financial path you are following.

Whether you are currently considering filing for a divorce or are already in the middle of it, there are some tax considerations you need to know. Many people don't thoroughly think about tax issues or the possible pitfalls they could face after a divorce.

Tax Considerations During a Divorce

For example, depending on the property asset, selling it could have hidden tax consequences. Some assets include real estate and business interests.

The tax consequences for these types of these assets might reduce their value. Further, The IRS allows a parent who is the primary custodian of a child to claim them on their tax return.

Other considerations include that a spouse can't file their taxes jointly for the year they get divorced.

If it occurs at the end of the year, then both spouses will need to adjust their withholdings for the change in their filing status.  In other words, the difference in filing status should be considered part of the overall resolution of the divorce.

Taking tax considerations into account will often help divorcing couples minimize the potential negative impact they could encounter when filing their taxes.

Both spouses must discuss specific tax details with their divorce attorneys or financial advisor before filing a divorce petition. Our California family law attorneys will review this topic in more detail below.

What Are the Most Common Issues?

As you go through the divorce process, there are several common issues about your taxes you need to consider, such as:

  • You first need guidance from a family law lawyer or an accountant;
  • Any spousal support that is received is considered taxable income;
  • The spouse paying alimony can deduct payments on their tax returns;
  • Child support payments are not tax deductible;
  • The custodial parent can claim the dependency exemption for all children on their income tax returns, but parents can choose a different way;
  • You can file an individual tax return if the divorce is not final by the end of the year;
  • Filing married but separately or filing jointly with your spouse could be the best option;
  • If your spouse is self-employed, then you might want to consider filing a separate tax return even before the divorce is finalized;
  • Keep detailed records to avoid any potential tax issues later;
  • You would be wise to get information from the IRS website about tax information for divorced and separated individuals. 

Finally, there are laws to protect a spouse from their ex-spouse's inaccurate or false joint tax return, called the “IRS innocent spouse relief.”

Basic Tax Filing Information in a Divorce

If you are currently going through divorce proceedings, you can choose to file jointly with your spouse if you are still legally married at the end of the tax year, which is always December 31.

You can still qualify for this tax filing status even if you are separated and no longer living together. The key is that there is no final family court judgment that terminates your status as married. However, to file a joint return, both spouses have to agree to it.

Basic Tax Filing Information in a Divorce

Suppose you are going through the California divorce process and have been physically separated for at least one-half of the year and have taken care of your child for greater than 50% of the time. In that case, you will most likely qualify as the “head of household,” which carries a lower tax rate.

If there is no agreement with your spouse to file a joint tax return, and you don't qualify as the head of household, then you must file as married filing separately.

Most divorcing spouses try to avoid this tax filing status because of the higher tax rates. Because California is a community property state, you will probably have to claim a portion of your spouse's income, even if you decide to file taxes separately.

After your divorce has been finalized, you could still be eligible to file as head of household. If not, you will have to file your taxes as a single person.

One of the primary factors while calculating temporary support during a divorce is your tax filing status. For example, your support will be substantially different if you file taxes jointly rather than separately and as head of household.

Please understand the connection between your tax filing status and the amount of support you receive or pay.

Simply put, even though you could receive more financial aid if you file your taxes separately, it does not mean you should decide to file taxes separately. This is because the additional support might not be beneficial in the end.

What Are the Benefits of Filing Taxes Jointly?

Typically, your tax rate is lower when you file a joint tax return. Thus, many couples going through a divorce will file their tax return jointly. Further, it's also easier to figure out how to divide deductions, such as:

  • dependency exemptions,
  • mortgage interest,
  • property taxes.

However, you should always first speak with a tax consultant to determine the best strategy for your situation.

A word of caution is that you need to understand that if you file your taxes jointly, you and your spouse are equally liable for the tax return. Perhaps your spouse owns a business and has a shady past with filing taxes. In that case, filing jointly might be too great a risk.

Further, suppose you are audited later by the Internal Revenue Service? In that case, you could be forced to work with your spouse to prepare for the audit even though you were divorced long ago.

Contact California Family Law Specialist for Help

You should file an amended tax return if you inadvertently claimed an exemption when you were not entitled. While this could increase your taxable income, you could probably be able to avoid surcharges for interest, penalties, or other fees.

California Certified Family Law Specialist

Further, you could reduce the risk of assessment if the IRS discovers the exemption was claimed twice. Contact our office for more information on how your tax filing status can impact your support.

Financial decisions involving taxes are often tricky in the event of a divorce. If you have issues regarding a claim for an exemption for your child on your taxes, you should first speak to a family law lawyer.

Several decisions must be made during the California divorce process, including the tax implications. Filing your taxes as a recently divorced single filer frequently has challenges. Federal tax laws offer some tax breaks for individuals with children, such as deductions for childcare expenses.

The California family law attorneys at Furman & Zavatsky can review all options and provide helpful legal advice. Please reach out to us by phone or fill out the contact form for a free case evaluation.

About the Author

Mariya Furman

Attorney Mariya Furman is licensed to practice before all of the Courts of the State of California, the United States Court of Appeals for the Ninth Circuit, and the United States District Court for the Central District of California. After receiving a Bachelor of Arts degree from Case Illinois I...

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