A common concern among people going through a divorce is what the tax implications of divorce are. Obviously this is not the first concern to come to mind when dealing with divorce matters, but it is a critical consideration nonetheless. Discussed below are the varied filing statuses and the tax consequences are for each option.
Married Filing Jointly
This is the filing status typically utilized by married couples. This type of return must be signed by both parties, and in signing a joint return, each spouse recognizes that each can be held responsible, jointly and individually, for the tax and any interest or penalty due on their joint return. People who are in the process of becoming divorce, but have not yet finalized their divorce, may elect this filing status for their Federal income tax return. However, once a divorce is finalized, each individual is jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before the parties' divorce. This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts that are due on a previously filed joint tax return.
Married Filing Separately
Parties who are currently married, or who are in the divorce process but their divorce has not been finalized, can also elect to file their taxes Married Filing Separately. The major difference between this and the Married Filing Jointly status is that with Married Filing Separately, spouses have separate liability. Therefore, each spouse is responsible only for the taxes due on their own individual return. However, this status frequently can result in each spouse receiving a higher tax. In almost all circumstances, when spouses file separate returns, they will pay more in combined federal tax then they would with a joint return. It is important to consider this impact and the potential tax differences when filing under Married Filing Separately status.
Head of Household
A person can file as Head of Household if they are not married or if they are "considered unmarried." "Considered unmarried" means that you file a separate return, you paid for more than half of the cost of upkeep of your residence in the previous tax year, your spouse did not live in your home for the last 6 months of the tax year, your home was the primary residence of your children for more than half of the year, and you must be able to claim an exemption for the child(ren).
If you are going through a divorce and have questions regarding your potential tax implications, contact our Pittsburgh Divorce Lawyers today!