Tax advice for your divorce

by Janet Thompson

Former partner, Divorce Helpline

Tax filing status:
is it better to file Married Filing Joint or Married Filing Separate?

In general, the greater the difference in your incomes, the more benefit you get from filing a joint tax return. For example, if you are a married couple and one of you has a $200,000 W-2 and the other has no income, married filing joint will save you $13,572 in taxes, whereas if you and your spouse earned $200,000 each, the savings is just $1. Of course, everyone’s case is different, so consult your Divorce Helpline attorney or tax advisor about your specific situation to be absolutely certain.

We are separated: How does that affect our filing status?

The IRS considers you to be married for the whole year if you have not obtained a final judgment of either divorce or legal separation by the last day of your tax year. For most people, this is December 31. However, if you live apart from your spouse, under certain circumstances you can be considered unmarried and can file as head of household. The rules for this are very strict, so be sure to carefully read IRS Publication 501 or see a tax accountant about your specific situation to be absolutely certain.

Tax liability—who must pay?

Settlement agreements typically include terms for who will pay tax bills for the current or previous years. This is binding between you two, but does not bind the IRS. If your Ex does not pay a tax bill as agreed, if you filed a joint return, you are personally liable and the IRS will come after you no matter what your agreement said. This is why it is best to get all past bills, especially tax bills, paid directly and in full at the time of the settlement. Be sure to get reliable advice about how you can protect yourself if past tax bills are a concern in your case.

How do I avoid having to pay my ex-husband’s tax bill?

Consider filing separately. If you file as single or even as married filing separate, you are liable only for the tax on your return under most circumstances. Also, if you file separately, you and your spouse still have the option to amend your returns later on and file a joint return.

My spouse and I live in a community property state and we want to file separately. How do we report our income?

In a community property state, most likely all income earned by both of you up to the date of separation is community income, and each of you must report one half of the total on your respective returns. Also, you would each report one half of the withholdings to that date. After the date of separation all earnings are separate, and each spouse would report these earnings on their separate tax returns. Earnings from investments remain community income until the assets are divided, and half should be reported by each of you.

My spouse has been underreporting our income on tax returns. I am concerned that the IRS will go after me. What should I do?

You may be able to claim relief from the tax liability under the “Innocent Spouse” rules laid out by the IRS. Your qualification depends on a number of factors and the law has changed recently, so consult with your tax advisor about your specific situation.

My spouse has been paying me a fixed amount of money since we separated. Do I have to pay tax on that?

Spousal support (alimony) is generally deductible by the payer and included in the income of the payee, but only if there is a legal document signed by both spouses or the court stating the amount to be paid. There are specific provisions that need to be listed in the document to make it effective, so do not assume that you have deductible spousal support unless your document has been prepared or reviewed by an attorney.

Can I deduct my attorney fees on my tax return?

Legal fees and court costs related to divorce are not deductible. However, fees for getting advice on taxes and tax related issues are deductible. Ask your attorney to allocate the tax related portion of your bill so you can deduct it. These expenses are deductible as miscellaneous itemized deduction on Schedule A and are subject to the 2% of adjusted gross income limit. You should also be able to deduct the cost of appraisers, actuaries and accountants.