Written by, Attorney Douglas C. Gardner
As a divorce lawyer in Maricopa County, clients often face questions regarding their tax situation as it relates to their divorce. I want to address two common issues that arise.
First, if the parties are divorced any time during the year, whether it be on January 2 (Courts are closed on the first for New Years) or December 31, or anywhere in the middle, the parties cannot file “Married Filing Jointly” or “Married Filing Separately.” A good divorce attorney will discuss with his client this issue, and divorces that are scheduled to be concluded near the end of the calendar year can, in certain cases, be postponed with a request that the Court not sign the final decree until January 2 of the following year. This allows the parties, if an appropriate agreement can be reached, to file jointly one last year. While there is often a financial advantage to filing jointly, this is not always beneficial to the parties, as one party may get a higher refund filing on his or her own, or the acrimony in the divorce case may be such that it is difficult or impossible for the parties to work together with a tax prepared to finalize and file the case.
If the divorce is not yet final by the end of the tax year, the parties are still legally married. However, if the parties have not cohabitated a single day for the past six months, the parties can file as married or single, and if children are involved, the option of Head of Household is available.
Electing how to file during a divorce can be a confusing situation, and often it may be best to set up a three way conversation with your divorce attorney, your tax preparer, and yourself, to discuss your available options and the financial impact that each option will have for you. Make sure that your divorce attorney is at least familiar with these basic tax issues, and that your tax preparer has experience with divorce cases.
The second issue that often arises involves claiming the children as deductions. The I.R.S. is set up under federal law, and your divorce will be handled under state law. Accordingly, the issues can be confusing even to many tax preparers and attorneys. Federal law states that the rule is that the parent that has the child the majority of the time can claim the child as a tax deduction in any given tax year. However, federal tax law also recognizes that in divorce cases, the state court will often order that the parents alternate claiming of the children for taxes.
The IRS has a specific form, form 8332, which can be signed by the parents to facilitate the parent not having the child half or more of the time to nonetheless claim the child as a tax deduction in a given tax year. While the parent with the child for more than half of the time can still claim the child under federal law any time that parent wishes to do so, that parent may be in contempt of court in the state court divorce case and can be ordered to amend a tax return or make other financial reimbursement or indemnification for failing to abide by the Court’s orders.
If you are going through a divorce and need legal advice regarding tax implications in your divorce case or other financial issues such as attorneys fees, child support, spousal support, and a business buyout or other property equalization, please call us today.