Filing taxes is already a complicated affair, but when you add divorce to the equation, it can be even more complex and stressful. Over half of American citizens hire a professional tax service to help with filing each year. But how do you accommodate for your divorce? Can you still split your tax refund? 

The IRS doesn’t play around, so it’s important to stay on top of the changes that come from splitting with your spouse. We’ll cover what effects divorce can have on your filing status, what to file as, and more. As you learn more about the rules regarding this area, you’ll be better equipped to handle this coming tax season.

What Happens to Your Tax Refund During Divorce?

Part of the divorce process in Arizona is the court dividing the couple’s shared debts and property. The court will most commonly divide your federal refund between you and your spouse. If you haven’t filed your tax return, the court will tell you what status to file under and how to split up the tax refund. If you wish to file under head of household, you’ll have to meet certain guidelines, for example, having paid over half of the year’s housing expenses.

What Status to File Taxes Under

If you want to file your taxes as married for the year’s federal return, you must have been married to your spouse at the end of that fiscal year (December 31st).  If you can still file as married, you may choose to file either jointly or separately. You may not, however, file jointly if you were separated from your spouse for the last half of that tax year. 

Understandably, people want to file in the manner that will give them the largest refund. So, it’s a good idea to consult an expert for advice on the implications of different filing status options.

What to Consider When You File

Divorce can take a long time, so you might have to file taxes while your divorce is still in progress. In an ideal situation, you and your ex will work together and submit them on time. If the situation isn’t amicable, you may request for the court to give temporary orders on filing. Here are some factors to keep in mind during this time:

Community Property Laws

Arizona is a community property state, which means that all of your income during the marriage is joint income until your divorce is official. If your divorce is still in progress and you choose to file separately from your ex, half of the joint income is yours and you must list it as such, even if you didn’t earn it yourself.

What to Claim

If you choose to file separate returns under the married status, you’ll have to then determine what you can claim. For income, just report your earnings and have your spouse report theirs. When it comes to deductions, the process may not be so straightforward and may require professional tax assistance. If, for instance, either you or your spouse chooses to itemize, that means you both must do it. You may only claim home-related deductions if you paid them with your own funds and not from a joint account.

Dependent Children

Having a dependent when you file can lower taxable income by thousands of dollars. If you have children with your spouse, the dependent exemption will usually belong to their primary custodian. This means that if you share one child, only one of you are allowed to claim them as a dependent. To qualify as a primary custodian, the child must’ve lived with you for over half of the tax year.

Support Maintenance

How does making support payments to your children or ex-spouse impact your tax concerns? Child support and spousal maintenance (what the IRS refers to as alimony) aren’t treated the same when you’re filing taxes. Alimony is tax deductible and counts as income for the receiving spouse, while it counts as a deduction for the paying spouse. 

Not all money that you pay to your spouse is considered alimony, though. Payments for upkeep on the payer’s home, non-cash transfers, and payments for using property won’t qualify as spousal maintenance. Keep in mind that if you receive a large amount for alimony, you’ll likely end up owing the IRS more. Child support payments don’t count as a source of income and aren’t tax deductible.

Retirement

If you’re getting a divorce later in life, it’s important to think about protecting your hard-earned retirement funds. Retirement benefits count as community property under Arizona law, but only the ones you accrued while you were still married to your partner. Any benefits you attained before getting married are still your own and your spouse doesn’t have rights to them.

Property Tax

You may gain tangible assets (like the family home) through your divorce settlement. Keep in mind that, when you sell these assets, you’ll owe tax on any profits attained from them. 

Legal Fees

Typically, professional fees involving divorce (including legal expenses) aren’t tax deductible. Included in these non-deductible expenses are costs related to retaining property that produces income and attaining financial settlements. You may deduct some accounting and legal costs as “miscellaneous itemized deductions,” including:

  • Fees for collecting or determining alimony
  • Fees for getting tax advice through your separation
  • Fees for determining property settlement estate taxes

How to Get Assistance with Divorce Tax Concerns

Included in the collection of changes you must endure during dissolution of marriage is tax considerations. It’s important to remember that separated or divorced couples have different tax concerns than married people. Most of the time, the IRS still considers you married until the divorce is finalized. 

Many don’t realize how much divorce can impact their tax considerations until it’s time to file. The decisions you make now can have a lasting impact on your financial situation. Do yourself a favor and plan ahead to save yourself extra hassle down the road. Speak with one of our divorce tax attorneys for assistance.
 

To get in contact and receive help with your divorce, give us a call at (480) 467-4348 or fill out a form below.

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