Making the many critical choices to get through a divorce can tax all of your emotions and relationships, but what about other realities – like the changes to your tax status? When it comes to marital agreements, Walker Wright & Associates offers counseling to help you manage your divorce strategies in a comprehensive way that matches your priorities.
Choosing your filing status
“Single” – If you have completed the process and reached a legal decision of divorce before the final day of the calendar year, you may file as “single,” and may not file jointly. Some states do also recognize an official decree of separation signed by a judge as equal to divorce. Some temporary orders, including matters of child custody, may not qualify you to file as “single,” as it varies by state.
“Head of household” – In some cases, when the family is not yet legally divorced, filing as head of household may be the preferred option, as it can lower a tax bill for partners with children. If the divorce is finalized, filing head of household offers more benefits than filing singly. For the spouse seeking this option, your child must live at home with you for over half of the year, and you must have contributed to upkeep of the home by over half.
“Married filing jointly” – This option makes sense for many people who are still in an ongoing divorce or separation process. With significantly lower tax burdens, and more benefits, filing jointly may require continued negotiations with your spouse, but could be the most sensible option for your filing status. Walker Wright & Associates and our family law team oversee go this route when the couple is willing to accept the potential liability of one partner having issues with their filing if they file incorrectly, as this will affect both partners who have signed the documents. In this case, the IRS does offer options that may qualify one partner for liability relief.
“Married filing separately” – When communications with your spouse break down, or an expectation of trust is compromised, you may be ready to forgo the benefits of filing jointly to protect your other interests. For this kind of marital agreement, Centennial is available to review the changes in filing status, which include a variety of exclusion of benefits available to joint filing.
Spousal support is a two way tax street. The spouse paying the support may deduct it from their taxable income, and the spouse receiving the support will be taxed on it. Voluntary payment beyond the marital agreement, child support, and necessary upkeep of the payer’s property do not qualify as this type of support. In tax terms, this means child support is a benefit to the recipient that remains untaxed, and becomes an expense to the payer that does not qualify as a tax deduction.
The creation of new retirement accounts that occurs when ordered by divorce proceedings will create new tax burdens. Other assets such as houses and stocks may be subject to increased taxes post divorce as well, if you are considering their sale. In other words, it is unwise to rely on the value of certain assets until you have consulted with a certified analyst to understand the effect a divorce will have on their taxation and their worth.
We at Walker Wright & Associates thank you for seeking our support in your marital agreement matters. Your unique goals are our highest priority, and we wish to help you achieve the outcome you wish for your family with our experience and dedication in family law. Contact us with any questions.