Originally posted Monday, December 29, 2014
While computer software and online tax preparation programs can simplify the annual ritual of filing city, state and Federal income tax returns, persons who have been through a divorce during the tax year or who are already divorced and have dependent children or are making payments to the ex-spouse should consult a qualified tax attorney or Certified Public Accountant to assure that the interplay between the tax laws, IRS rules, and the divorce/custody orders is properly addressed.
Persons who are divorced anytime during the tax year and do not remarry during the tax year, are considered “single” for the entire tax year, even if the divorce is entered on December 31st. While the tax impact of the divorce is not often a determinative factor as to the timing of having the divorce judgment entered, it is a factor to be considered. The change in tax filing status may increase taxes and limit or complicate the ability to claim various deductions or credits, such as a home mortgage, charitable donations, or children. The otherwise applicable tax rules may have been altered by becoming divorced or under terms of the divorce judgment. The ability to file as “head of household” may also be impacted by the timing of the separation of the parties or the entry of the judgment.
Conversely, if obtaining a planned divorce is postponed until the following tax year, there may be issues with the soon to be ex-spouse as to agreeing to file a joint return (and who gets the refund or pays the amount due) or filing separate returns at possibly higher tax rates (and deciding who claims what deductions).
The divorce judgment or settlement should address how the tax deductions for the current tax year will be handled, who may claim which children as dependents for what tax years, and whether any payments to the ex-spouse are for property (generally non-taxable) or as spousal support (which can be taxable to the recipient and tax-deductible by the payor). The language in these provisions will often control the tax treatment regardless of the underlying intent of the parties or the court, so it is important that the family law attorney identify any issues for the client to review with a tax professional.
Claiming dependents by agreement under the terms of a divorce may require the party claiming the child to obtain a consent form from the other party to file with the tax return, such as IRS Form 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. The divorce judgment should require the parties to provide these forms well in advance of the tax filing period to allow time to obtain compliance should a party fail to provide the required form.
While the attorneys of Coffee Ward & Bower, LLP do not offer tax advice to clients, we are experienced in identifying financial issues in dissolution of marriage and child custody matters for a client to review with a tax professional. Our attorneys are available at your convenience for a no cost consultation to discuss your questions and concerns in a wide range of family law matters. Please call our office at 618 825-0059 or email our office to schedule a consultation.