For people who divorced last year or who are in the midst of divorcing now, taxes are yet another of the many details to be negotiated. And with tax day just around the corner, now is a good time to start.
But filing taxes when divorcing or recently divorced can be confusing. Do you file jointly? Do you file as a married couple? Who claims the kids? Here’s a primer to explain the basics.
For people who divorced last year:
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Your filing status is determined by your status on the last day of the year for which you’re filing. If you were divorced as of Dec. 31, then you must file singly. If you were still married on Dec. 31, then you must file as married, filing either jointly or separately.
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Wisconsin is a community property state. If you were divorced in 2010, unless you opted out through a reclassification of income, both partners do a tax return as if still married up to the date of the divorce. This requires an exchange of information as to both incomes, withholding, deductions, etc. After the date of the divorce, each party reports his or her own income, withholding, deductions, etc.
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Child support is not income to the person receiving it, nor is it deductible by the person paying it.
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Maintenance (also called alimony or spousal support) is income to the person receiving it and a deduction for the person paying it.
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In most divorces, the marital settlement agreement or divorce judgment includes a provision (previously determined by the couple or by the court) indicating which party may take exemptions for dependent children. If this was not included, IRS rules will determine who gets the exemption. Those rules indicate that the custodial parent (the parent with whom the child spends the most number of nights during the year) may claim the exemption. If parents share equal custody, the custodial parent is the one with the higher adjusted gross income.
For couples now divorcing:
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Tax decisions are best made when developing your temporary order. You can indicate there how the returns will be filed, who will prepare them, who pays for the preparation, what happens to a refund, if there is one, or how to handle taxes due if needed.
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In most cases, it’s advantageous to file jointly, an option since you were still married on Dec. 31 last year. That way, you can claim exemptions for all dependent children on one return to maximize your refund. In some cases it may be worthwhile to also run the tax returns married filing separately to see if that results in a higher tax refund.
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While a divorce is pending, income tax refunds are considered a marital asset and if spent by one party without the consent of the other or order of the court, will need to be accounted for when marital property is divided.
An experienced family law attorney can help divorcing couples prepare for and navigate these decisions, assuring optimal outcomes. You can also find more information in IRS Publication 504—Divorced or Separated Individuals.
By Ellen Frantz, Johns, Flaherty & Collins divorce lawyer in La Crosse WI. For a La Crosse divorce lawyer, call Johns, Flaherty & Collins at 608-784-5678.