Taxation Issues in Dissolution

Filed under Divorce and family law.

TAXATION ISSUES IN A DISSOLUTION

Taxation issues arise in most dissolutions. Although we are not an accounting firm, nor accountants, it is important to have a grasp of several tax issues that are common in dissolutions:

1. If you are married on December 31 of any given year, you have a choice of filing either “married filing jointly” or “married filing separately.” You cannot file a separate, individual tax return unless you are divorced on or before December 31 of any given year.

2. You are married for taxation purposes if you have not yet received a decree of dissolution, or if you are living together in a common-law marriage recognized either in the state where you now live or in the state where the common-law marriage began (Washington does not recognize common-law marriages).

3. If you are nearing the end of the dissolution process at the end of the calendar year, it may be advantageous to delay the entry of the decree until after the first of the next year in order to be able to file “married filing jointly.” This will usually, but not always, result in a lower total tax liability. You should engage the services of a CPA to run alternate scenarios or purchase a tax program and do the same yourself.

4. If you are unmarried, you may be able to claim the more favorable “head of household” tax filing status if you are the custodian/primary residential parent of your child or children and if they live with you for more than half a year, except for temporary absences, such as visitation or school.

5. With your former spouse, you may choose to allocate the exemptions for any children as you wish. If you cannot agree, the court will normally equally divide the exemptions between the two parents, regardless of the residential schedule in the parenting plan and who the custodian/primary residential parent may be. The court will ordinarily, however, condition claiming the exemption by the noncustodial parent upon being current in child support obligation.

6. Child support is not deductible by the payor nor includable by the payee in his or her income.

7. Spousal maintenance is generally deductible by the payor and includable by the payee in his or her income.

8. The entire amount of undifferentiated family support is generally deemed to be maintenance and therefore deductible by the payor and includable by the payee in his or her income.

These are just some of the common tax issues in a divorce. Please feel free to contact us for any questions you may have about these issues and others.