With tax season upon us, now is a good time to review the various tax implications of a divorce. For a divorcing couple, the tax issues are relevant both during the pendency of the divorce and upon the divorce being finalized. In both instances, an individual must understand their rights and obligations as it relates to filing federal and state tax returns.
If a couple is married as of December 31st of a given tax year, even if a Complaint for Divorce has been filed, the parties are deemed married for tax purposes. As such, the parties must either file married filing jointly or married filing separately. In most instances, the cumulative benefit by way of reduced taxes owed or greater refunds is generated by filing jointly for as long as possible. In addition, agreeing to file joint returns, while dividing the amount owed or refund received by some percentage basis, eliminates the need to further negotiate which party can take various exemptions, deductions and credits, specifically for their dependents and the marital residence. The specifics as to the applicable percentages owed/due for each party depends upon the specifics of the case, i.e. the date of filing, the parties’ respective incomes, how payments are being made, etc., but there is no doubt that some level of entitlement exists. However, it cannot be forgotten that executing and filing a tax return requires an individual to certify to the accuracy of the return, such that in cases where there are questions as to the accuracy of a parties’ reported income it may be wise to file separate returns to avoid any future liabilities due to audits.
If a couple is divorced as of December 31st of a given tax year, then they will be filing individual returns. During the negotiation of a settlement, an individual needs to make sure that all matters relating to the filing of the tax returns and the relevant exemptions, deductions are credits are negotiated and agreed upon so as to avoid any issues post-judgment. Again, the exact division of the exemptions, deductions and credits cannot be clearly defined absent a full understanding of all the circumstances of a given case; however, so long as the parties understand the potential tax implications, a settlement as to these issues must be reached.
Quite often, in the midst of a divorce, relatively minor issues such as tax implications of the divorce are considered secondary to the larger matters of custody, support and equitable distribution; however, it is imperative for all divorcing couples to ensure that these matters are resolved prior to filing deadlines so that there are no problems with filing.
David R. Cardamone, Esq.
Law Office of Miller & Gaudio
Red Bank, New Jersey