Tax Issues and Divorce – Part 2

divorce tax filingFiling taxes during or after a divorce can be more complicated than expected for the parties. It is important to understand a variety of tax issues unique to divorcing parties in order to avoid unexpected short- and long-term issues.

In Part One of this article, we introduced some of the most common tax issues facing individuals during and after divorce. Here we offer several more things you must know when going through a marital dissolution action.

The Filing Status to Use While the Divorce is Pending

Many people inaccurately believe that once a divorce is filed, they are no longer entitled to file as “Married Filing Jointly.” This it not true. IRS code allows a taxpayer who is married on the last day of the calendar year to file as either Married Filing Jointly, Married Filing Separately or, in some cases, Head of Household.

The IRS makes no distinction for people going through a divorce in any given year. Even if the final court date is scheduled for January 2 of the following year, so long as the parties are still legally married (with no legally binding divorce decree or separation maintenance order in place) on December 31 of the current year, they are entitled to file as Married Filing Jointly. This can be beneficial, as most married couples enjoy greater tax benefits when filing under this status. At the very least, this will shave off a bit of tax liability for the current tax year.

Some Legal Fees Can Be Deducted

One of the most common questions asked by divorcing parties is whether they can deduct their legal fees on their tax return. Unfortunately, while the IRS does allow for the deduction of legal fees related to tax advice from your divorce lawyer, the balance of his or fees is non-deductible.  For this reason, it is critical to ensure your divorce lawyer prepares an itemized invoice, as it is your responsibility to provide support for any deductions you take.

How the Property Division Can Impact Taxes

For most divorcing couples, the majority of their marital estate is comprised of retirement accounts. In most cases a Qualified Domestic Relations Order (QDRO) is required to effectively divide these assets. However, there are tax consequences for a spouse receiving a share of the other spouse’s retirement accounts. It is important to fully discuss the potential tax liability – and ways to avoid them – with your divorce attorney or financial planner.

To learn more about divorce tax filing please contact our office.


Source: Tax Issues and Divorce – Part 2 | Robert Hetsler,J.D. CPA,CVA,CFF,FCPA,MAFF,CMAP,PFP | LinkedIn