Our Pittsburgh divorce clients are often concerned and have questions with regard to the tax implications of divorce. Of course there are many concerns throughout a family law matter – but tax implications are something to consider very seriously. Today we will discuss the various different tax filing statuses and what these may mean for a divorced couple.
Tax Implications of Divorce
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. However, even if a person’s divorce is not finalized, the parties can choose this filing status for their Federal income tax return. However, pursuant to IRS Publication 504, once a person’s 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 utilize the Married Filing Separately filing status. The major difference between this and the Married Filing Jointly status is that with Married Filing Separately, spouses have separate liability. This means that each spouse is only responsible for the tax due on their own return. However, it is important to note that with the Married Filing Separately status, these separate returns may give each spouse 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.
Head of Household
A person can file as Head of Household if they are not married or if they are “considered unmarried.” For purposes of filing Head of Household, “considered unmarried” means that you file a separate return, you paid for more than half of the cost of keeping up your home for that past tax year, your spouse did not live in your home for the last 6 months of the tax year, your home was the main home of your children for more than half of the year, and you must be able to claim an exemption for the child(ren).