Tax Return Filing Status During Divorce

By | January 26, 2014

How should a taxpayer file their tax return during a divorce? 

Should a taxpayer file a single, joint, or married filing separately-for federal income tax purposes during the pendency of your divorce/separation proceedings? There are many tax considerations to a divorce that taxpayers should be aware about and filing status is one of them. Making smarter decisions at this stage of the divorce will be very beneficial to taxpayers down the road and could save both parties to a divorce and headache.

Tax Return Filing Status During Divorce

The main IRS rule is that filing status depends on your marital status, and your marital status depends upon your status under state law.

At the end of the year, if there has been issued a “final” decree of divorce or you are legally separated under a “final” decree of separate maintenance, then you are no longer married and must file as a single person. The only exception may be is if you live with one or more children and pay more than half the cost of running the household. If this is the case, one may qualify for head of household filing status which has several tax advantages.


Determining Filing Status During Divorce

The key to determining filing status is checking to see if there is a final divorce decree from the court and understanding what exactly is says. This will also largely depend on state divorce law.

At the end of the tax year, if there has been no “final” decree of divorce, annulment or separate maintenance, then you are still considered as married. This is the truth even if you are separated from your spouse under a separation agreement or a non-final court decree.You therefore must file either a joint return or as a married individual filing separately. This could have several disadvantages


Special rule permits you to be treated as unmarried for filing status during divorce if:

  • you don’t file a joint return for the year;
  • you maintain as your home a household which, for more than half the year, is the principal residence of a child;
  • you furnish more than half of the cost of maintaining that household; and• during the last six months of the year, your spouse isn’t a member of that household.

Even if you can file jointly under the above rules,  you still may want to file separately. If you made deductible alimony payments, you must file a separate return in order to claim the deduction. The alimony deduction cannot be taken on a joint return.


Liability under IRS Audit during Divorce

Also, both spouses are generally liable for the tax if a joint return is filed and any representations made on the tax return. Under an IRS audit,  you could be liable for all the additional tax, interest and penalties even if the problems with the return are solely related to your ex-spouse.

If something bad happens, you may be relieved of liability for a tax understatement that is attributable to erroneous items of your spouse if you didn’t know or have reason to know about them, meet some other requirements, and elect relief within two years after IRS first tries to collect the tax from you. There is also special relief for innocent spouses that may apply to this type of unique situation.

There are several important things to remember about filing taxes and divorces. Once the divorce or separation agreement is finalized or you and your spouse have not resided in the same household for a full year, taxpayers also may file an election to limit liability for joint returns already filed to the portion of the tax deficiency that is allocable to you.


Divorce tax election

There are several requirements related to the divorce tax election. To qualify, you must not have actually known of the deficiency when you signed the joint return, and elect this relief no later than two years after IRS begins collection activities. Divorcing spouses should make this election as soon as they are eligible to if there has been an understatement of tax on a joint return.