Taxes and Divorce
Key Points
  • Take the time to prepare hypothetical tax returns under both joint and separate filing status. Each scenario will yield different tax liability that may prove to be advantageous for one or both spouses. Preparing these estimated tax returns ahead of time, will make you better prepared down the road, but can also become part of the negotiations of the property settlement agreement.

Although a particular marriage may be coming to an end with divorce, this does not mean that the old adage about death and taxes does not still ring true. As the institution of marriage has often drawn comparisons to an economic union between two people, the truth is that the two spouses are legally still responsible for any and all tax liabilities incurred.

To avoid any potential pitfalls, it is recommended that you make a rough estimate of your federal and state taxes coming due. This would be important even if you cannot obtain the actual, exact figures. It is suggested that two sets of estimates be prepared: one set for separate filing status and one set for joint filing status. The reason for the estimates are so that you will be able to make the decision that will prove most advantageous with respect to your impeding filing status. In addition, you should discuss this decision not only with your attorney or tax advisor, but also your spouse as well. If at all possible, try to reach an agreement with your spouse concerning this issue and document the result in writing.

How Will You File Your Taxes

To be eligible to file under "Married filing jointly" status, you and your spouse must be legally still married (even if you are living apart) as of the last day of the tax year, December 31. To qualify for "Married filing separately" status, you must still be legally married as of the last day of the tax year. Finally, to file under "Single" status, you must be legally unmarried or legally separated as of December 31 and not eligible for "Head of Household" status. Head of Household would be defined as either a single person who provided more than half of the household maintenance costs AND whose household is the principal residence (defined as being more than one half of a year) of at least one dependent. If you are married but have lived physically apart on or prior to July 1 of the tax year, you must employ "Married filing separately" status.


The tax issue is perhaps the greatest example of how important it is to have all arrangements with respect to the impending divorce documented in writing. Often during a divorce, the spouses reach understandings with respect to alimony and child support, but never bother to get the results down in writing on paper. Alimony is actually tax deductible. However, it will need to be documented by either a written agreement signed by both parties or by an actual court order. In other words, in the eyes of the IRS, word of mouth agreements are not enough to warrant a deduction. If you are receiving alimony, that too is income that must be reported. However, in order for alimony payments to be deductible, separate returns must be filed. Child support is never deductible, either for the parent who pays it, or the parent who receives it.

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I.R.S. RECAPTURE-- Recapture prevents a divorcing couple from dividing their property and calling the distribution alimony. Recapture applies to alimony when the alimony paid decreases by more than $15,000 annually within a three-year period after a divorce. If in a three-year period a taxpayer’s alimony decreases by more than $15,000 from the amount of the proceeding year, the I.R.S. regards the alimony payments as property distribution. It recaptures the obligor’s income retroactively. In this, the I.R.S. recovers the tax benefit of a deduction or a credit taken by a taxpayer and disallows the deduction.

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