Divorces often take long enough that the separating spouses need to file taxes during the process. This often leads to conflict. In one such case, one spouse filed a joint return without informing the other, who then filed a separate return. The spouse who filed the joint return kept the entire refund, and the IRS asked the other why they had filed taxes twice. This led to concerns about identity theft and a date in tax court. The joint filer ultimately needed to pay back the refund. While most divorces aren’t this difficult, the average tax refund was around $3000 in 2022, so sharing this money is a significant concern for many divorcing couples.
If a couple’s divorce is finalized by December 31 of the past year, they’re no longer married for tax purposes. This means that former spouses will need to file individually if their divorce was finalized at any point in the year, even if they were legally married for most of the year. If the divorce wasn’t finalized before the end of the tax year, they’ll still need to file taxes as a married couple in most cases. Couples can either file jointly or separately.
Filing jointly usually results in either a larger refund or a lower tax bill than filing separately. However, whether filing jointly during a divorce is a good idea or not will depend on some specifics about the couple’s financial situation as well as how contentious the separation is. If one person is concerned that their spouse is evading their taxes, owes back taxes or will owe a significant amount in taxes, filing separately can be the best option. When a couple files separately, each person is only responsible for their own return. Filing separately can be a good way to protect one spouse from the other’s bad behavior. It also makes sense in a high-conflict divorce in which spouses can’t cooperate on a tax return.
Couples who file separately aren’t eligible for educational tax credits, student loan interest deductions or the adoption tax credit. If any of these apply to a couple’s situation, it might be better for them to file jointly. If one spouse has income-based student loan payments, filing separately will mean these payments are based on individual rather than joint income, so filing separately is usually the better option. If a couple files separately, either both need to itemize or both need to take the standard deduction.
If one spouse qualifies as a head of household, this can be a better filing status than married either jointly or separately. To qualify as a head of household, one person needs to have lived separately from their spouse with a child or other dependent for at least six months while paying at least half of the household’s expenses. One party may be able to claim head of household status before the divorce is finalized, and it usually comes with a lower tax burden. Unless they also qualify as a head of household, the other spouse will file as married filing separately.
A tax refund is considered marital property, so it will be subject to the same distribution process as the couple’s other property. If the divorcing couple files jointly, they’ll receive one refund. This generally will be divided based on what the court considers to be fair and equitable. In most cases, this means splitting the tax refund relatively equally. However, the court will also consider the overall amount of income and assets, who earns the income and the reasons for divorce when making these decisions.
If one spouse owes back taxes, the IRS will apply the joint refund toward the debt. When this happens, the other spouse can file a specific form to request their portion of the refund. In this case, the spouse who didn’t owe back taxes will be entitled to keep those funds.
If a couple files separately, each person will get their own refund. If they earn a similar amount and owe a comparable level of taxes, they’ll probably get similar refunds as well. In this case, each person will probably keep their individual refund. However, if one person gets a larger refund, they may need to share some of that money with their spouse as part of the overall division of property.
If a couple can cooperate well enough during their divorce, they can decide how to fairly share their tax refund on their own. This usually means filing jointly to get the biggest refund and then transferring the money to each person’s individual account. If they file separately and get different refund amounts, they might decide to split the total amount or to each keep their own. Sometimes filing separately can be simpler since it minimizes conflict over the refund.
When the couple can’t agree on how to handle their tax refund, the court will make that decision while dividing the couple’s other property. If the couple is having a serious conflict over the refund, the court might hold the funds to prevent one person from spending the money while it makes its decision. Depending on the timing, the court might simply add the amount of the refund to the total cash assets it’s considering for division during the divorce process. If the couple doesn’t know how much they’ll receive in their refund, the court might wait until the tax returns are finalized and divide the refund separately.
To make sure they continue to receive the tax returns they’re hoping for, both parties will usually need to adjust their W-4 forms after a divorce. They’ll also need to agree on who claims any children as dependents and make sure to report any alimony payments correctly.
Filing taxes during a divorce can be complicated, but the tax refund is usually considered shared property that should be divided fairly between the two former spouses. Working with an attorney as well as a tax expert can help this process go smoothly.
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