On March 27, 2021, the Treasury Department and the Internal Revenue Service announced that individuals’ income tax filing deadline would be extended from April 15, 2021, to May 17, 2021. For most people, filing taxes is complicated, but for those recently divorced or recently separated, it may be even more difficult than in prior years. With the tax deadline so close, we decided to address the three most commonly asked questions.
WE ARE NOT TAX ATTORNEYS THIS IS JUST FROM OUR PERSPECTIVE AND YOU SHOULD ALWAYS SPEAK WITH YOUR CPA OR A TAX ATTORNEY
What is your filing status?
Your filing status is based on whether you were married or single on the last day of the tax year. If you filed for divorce in 2020, but you did not receive a decree, order, or judgment of legal separation before December 31, 2020, then you are still legally married. Yes, even if you received your Final Judgment of Dissolution of Marriage on January 1, 2021, you are still considered married for the 2020 tax year. However, this does not mean you are required to file a tax return with your spouse. Instead, you could choose to file “married filing separately”, or in some situations as the “head of household.” If your divorce was final, then you may file as “single”, or “head of household” depending on your specific situation.
During the pendency of the Dissolution of Marriage case, the tensions may be high. Therefore, it may be better if you both agree to request an extension from the IRS and address how you are filing taxes when you finalize your Marital Settlement Agreement.
Do you have to split tax refunds or tax liability?
If you have not finalized your Marital Settlement Agreement, you will need to discuss how to split any tax refund or tax liability with your spouse. If you cannot agree during the pendency of your divorce, all is not lost because you can still address tax issues in your Marital Settlement Agreement. Over the last few months, many of our clients requested their spouses reimburse them for their portion of the stimulus checks. Even though your spouse may have spent the stimulus money, there are still legal mechanisms available to you.
It is also important to note that the court views tax debt incurred while married as a marital debt. Even if you did not work while you were married, you are still jointly responsible for that tax debt. Given this, you must make your attorney aware of any unpaid tax debt.
Who claims the minor children?
In terms of the IRS, only one parent can claim a minor child on their tax return in any given year. If you chose to file separately during the pendency of your divorce, you need to discuss who is claiming your children for tax purposes before filing. If you have two children, then it is easy because each of you could claim one child. However, if you only have one child or an odd number of children, it may be difficult for you to reach an agreement. Regardless, you cannot both claim the same child. This means you must reach some agreement, or request an extension from the IRS. Once your divorce is finalized, your Marital Settlement Agreement should address who claims each minor child for tax purposes.
There are many tax issues and financial considerations to be aware of during a divorce. We often recommend clients speak with a tax expert in addition to working with one of the attorneys in our office. This will create a Marital Settlement Agreement that addresses your tax concerns!