Getting through a divorce can be a nerve-wracking process. There’s property to divide and monetary assets to split. Who will keep the family home? Can you survive on your own financially without spousal support? And if you have children, custody issues will also need to be addressed.
But this isn’t where the financial analysis ends. Because divorce deals with the division of property and other assets, your taxes will be affected as well so it pays to address these issues during the final settlement.
For example, most married couples typically file a joint federal tax return. This joint filing status often results in the couple paying lower taxes and the benefit of some additional credits and deductions not available if the returns are filed separately. Of course, if you do choose to file jointly, you should be aware that both you and your ex will be on the hook for any penalties due to an incorrect filing. As a result, many divorcing couples look to the Innocent Spouse Relief before choosing how to file to determine if they would be protected from additional penalties and fees.
Some individuals may also have the option of filing as Head of Household, a status that is even more favorable than the “Married Filing Jointly” tax bracket.
In addition to filing status, divorcing or separated couples must also decide who will claim the children as dependents and how property distributions will be treated under the tax code. This can include the sale of the marital home as well as retirement account distributions and the division of stocks and bonds.
Alimony is another consideration as some spousal support arrangements can be tax deductible for the party that pays while others are not. To determine the best way to file, you should discuss these issues with your spouse and try calculating the different filing methods to see which one works best for you.