Tis’ the (Tax) Season

For individuals going through a divorce, or for those just contemplating a divorce, one of the big questions often posed by clients to divorce attorneys, as well as by prospective clients, is “should I file a joint return this year with my spouse”?

Unfortunately, this question is not a simple yes or no. Married people can file a joint return so long as they are married on the last day of the tax year, i.e. December 31st – even if a divorce proceeding is pending. However, the option to file “married filing separately” also exists.

Deciding whether to file “married filing jointly” or “married filing separately” is a decision based on financial factors, but also the possible legal ramifications one might encounter if they choose to file a joint return with their soon-to-be ex-spouse while divorcing.

Here are some things to consider before you decide to file jointly or separately with your soon-to-be ex-spouse:

Tax Liability & Your Legal Argument: From a legal perspective, if you are going through a divorce and are concerned about your spouse’s financial dealings during your marriage, it is likely not a good idea to file a joint return with your spouse.

By filing the joint return, you agree that everything stated in the return is true and correct, and you also agree to share all of the responsibility for the income and liabilities reported. Also, this agreement to your spouse’s income could also pose a problem if you take a position in the divorce which questions or opposes your spouse’s contended income.

So, if you have concerns or suspicions that your spouse is not being transparent about their reported income or are overstating deductions, it may be a better decision to file separately as you may be able to shield yourself from your spouse’s possibly illegal or fraudulent financial dealings.

Tax Deductions: If you are contemplating filing married filing separately, it is important to note that all community property deductions (and community property income) are to be equally reported on each spouse’s individual “Married Filing Separately” tax return. Further, if you have a tax-deductible spousal support order (which will not exist for divorces executed after December 31, 2018), to benefit from the spousal support tax deduction, separate tax returns are necessary.

Child Tax Credit: In 2017, the Child Tax credit is $1,000 with phase-out beginning at $110,000. In 2018, the Child Tax Credit is $2,000, with a phase-out beginning at $400,000 of combined income. However, if a spouse earns less than $200,000, they would get the full Child Tax Credit for married filing separate. So, if for example, Wife earns over $400,000, but Husband earns less than $200,000, then filing separately will ensure that the Husband can utilize the Child Tax Credit (if the child is under 17 years old.)

Conclusion: The tax return filing status of a couple either contemplating or proceeding through a divorce may, on the surface, seem like a rather trivial choice, a rudimentary responsibility that every individual must complete every year. However, when in the throes of a divorce, basic tasks are analyzed differently, and people should consult with both their divorce attorney and CPA to determine the ramifications, risks and benefits when choosing whether to file married or married filing separately. Divorce is hard enough, both emotionally and financially. Doing one’s due diligence, asking the right questions, and seeking guidance from the proper professionals can only help make an already difficult process much simpler.