Divorce and Taxes: Filing After a Separation

For those in the process of ending their marriage, there is more to consider than a simple separation of assets. Whether legally separating or divorcing, you could be facing big changes in your individual tax situations— here, Masters Law Group shares information that could help. 

While most Americans are taking a sigh of relief after tax season, if you are separating from your partner, your taxes could need more attention. Much more.

Assets, Taxes and Divorce, OH MY

In the midst of a divorce, tax implications may not be the most pressing issue on your mind. However, filing taxes after you divorce and how you draw up your divorce agreement can make a big difference when it comes to getting a tax return.

The IRS lists four basic filing statuses available for individuals who are divorced or separating:

• Married filing jointly. On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.
• Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them.
• Head of household. Some separated people may be eligible to file as head of household if all of these apply:
  • Their spouse didn’t live in their home for the last six months of the year.
  • They paid more than half the cost of keeping up their home for the year.
  • Their home was the main home of their dependent child for more than half the year.
• Single. Once the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.

When couples get divorced, they must divide all property and debts. Couples can hire an attorney (separately or jointly) to help prepare for a financial future after divorce. Here are some important things to think about so you can stay on top of your taxes.

Determine Your Filing Status

If you complete your divorce on or before December 31, you cannot file a joint tax return. If the new year starts before your divorce becomes official, the IRS will still recognize you as married and therefore allow you to file a joint return for the previous year. You are also eligible to file a joint return, but if you do not want to, you can choose the married filing separately.

If you are still legally married when filing your tax return, filing jointly may be your best option because you can claim more of a standard deduction by combining incomes with your spouse. The standard deduction is the amount of income that you can use to lower your tax bill. The standard deduction for tax year 2022 is $25,900 for married couples filing jointly, $12,950 for single taxpayers and married individuals filing separately and $19,400 for heads of households.

 In order to file taxes as head of household after a divorce, you must meet all three of the following requirements:

• The last day of the year is considered the date on which you became unmarried (so you were either single, divorced or legally separated).
• You paid more than half of the costs associated with keeping up your home for the year.
• You lived with a qualifying dependent or child for more than half the year.

Updating Your W-4

If you and your spouse have jobs and earn wages, you’ll each need to fill out a W-4. This form tells your employer how much federal income tax to withhold from your paychecks. You’ll also need to split your allowances between both spouses on the W-4, so if you divorce, you may need to recalculate or adjust your withholding allocations. 

Joint filers need to split their W-4 withholding between both spouses, so if you divorce, you may need to recalculate or adjust your allowances.

Alimony payments from divorce or separation agreements that were finalized before Jan. 1, 2019, are still considered an above-the-line deduction when filing taxes. However, as of January 1, 2019, alimony arrangements can no longer be modified. Therefore, if you are the paying spouse in a divorce or separation agreement that was finalized after that date, you cannot deduct alimony payments when calculating your adjusted gross income. Unlike alimony payments, child support payments are not deductible. If you receive child support payments, you do not have to report them as income on your tax return.

Claiming Children as Dependents

If you have children, understanding who can claim them as dependents is important. This will also affect tax credits you can claim when you file your taxes. Parents who claim their children as dependents are known as custodial parents. Custodial parents have the children live with them for more days out of the tax year. Divorce agreements will usually have custodial parents underlined.

If you are not the custodial parents, you cannot claim child and dependent care credits. You also cannot file your taxes as the head of the household. Form 8332 is an IRS-approved document that allows custodial parents to release their claim to the exemption for a dependent child. If you sign Form 8332, you cannot claim the child as your dependent, and you cannot revoke it until the following tax year. In addition, the Trump tax plan eliminated exemptions for dependents in favor of a higher standard deduction.

Final Thoughts

Individuals who change their marital status through a legal separation or divorce must also change their tax filing status. For filing purposes, the IRS generally considers a couple married until they receive their final decree of divorce or separation.

If you’re going through a divorce, it’s necessary to take the proper steps to understand how it will impact your taxes. If you have specific questions about divorce it’s always best to work with an established and experienced family law attorney. 

Masters Law Group understands that divorce is a stressful situation and that our clients want to move on with their lives. As such, we move through settlement negotiations, mediation or litigation with our clients’ assurance and well being in mind.

Whether you are facing a contested divorce, uncontested divorce, or civil union divorce, our firm’s attorneys are ready to skillfully advocate for your position and provide your voice when you need it most. Contact us today to schedule a consultation.