Filing Taxes After Divorce – IRS Divorce Rules

If I Got Divorced in 2022 – How to File Taxes?

Following the holiday season, we enter a new season of giving and receiving known as tax season. We patiently await the mailman to deliver our W2s and 1099s. We collect the paperwork to calculate itemized deductions, capital gains, losses, and alternative minimum tax, to mention a few. This may seem very familiar to some, but it is entirely foreign to others, particularly those going through a divorce. Divorce is a period of emotional upheaval as well as financial upheaval. Divorce can be excruciating financially for families with children and older couples who have assigned job tasks to one spouse and homemaking duties to the other.

Divorce can significantly impact many elements of your life, including how you file income taxes. All of the changes can be perplexing, and you’ll have to confront some tough decisions since you’re unsure whether you ought to do this. Here are some pointers to help you get through tax season when recently divorced.

Filing Status Considerations

When are you considered married or unmarried for filing purposes?

Your filing status for a given year will be determined by your marital status on the last day of the tax year (usually December 31).

The primary factor to consider when deciding which form of file to make is your marital status on December 31. If you marry on this day, you are legally married for the rest of the year, according to your state’s laws.

If you are divorced or officially separated under state law on December 31, you are considered unmarried for the remainder of the year.

Your filing status is significant because it influences the credits and deductions available to you, your standard deduction, and the amount of tax you must pay. Depending on your circumstances, you may be unable to choose your filing status. In general, individuals who are divorced or contemplating divorce have four filing options:

  • single
  • married filing separately
  • married filing jointly
  • and head of household.

A thorough comprehension of the notion of filing status also includes understanding the innocent spouse laws and divorce time issues.

Divorce and Separate Support Orders

Suppose you are single or officially separated by a divorce or separation (separate maintenance decree) on the last day of your tax year (typically December 31). In that case, you are deemed unmarried for the entire year. You are still considered married if your separation is under an interlocutory, often known as a temporary order judgment of divorce.

If you and your spouse divorce, only file tax returns as an unmarried single (with the plan to remarry) and then remarry the same person the following tax year, you will both be considered as if you and your spouse had never divorced.

Legal Annulled Marriage

If you acquire a court declaration of annulment (which states that no legitimate marriage ever existed), you are considered single for the tax year if you do not remarry. In addition, for all tax years affected by the annulment, you must file revised federal income tax returns (IRS Form 1040X) (if not barred by the statute of limitations). These returns should be used to change previously filed tax returns to single (or head of household if you qualify). In most cases, the statute of limitations does not expire until three years after filing your original return.

Married Couples who live apart

You are still considered married if you live apart from your spouse but are not formally separated by a divorce decision or separate maintenance. If, in addition to living apart from your husband, you complete all of the following requirements, you are deemed unmarried for the entire year:

  • You file a separate return (you do not file jointly),
  • You paid more than half of the cost of maintaining your home for the tax year,
  • Your spouse did not live in your home during the last six months of the tax year, AND
  • Your home was the primary residence of your children, stepchildren, or adopted children, whom you can claim as a dependent, for more than half of the year.

This requirement is also met if your home was the primary residence of foster children (whom you can claim as a dependent) for the whole calendar year.

If you meet the qualifications above and are single, you will most likely qualify for head of the household status.

Which tax filing status should you choose?

Because marital status is determined on December 31, the following regulations will apply:

What is Filing as Head of Household?

The rules for the head of the household vary based on whether you are single (including divorced) or married. You will have to provide more than half of the household expenses, and your household must be the primary residence of at least one dependent. See Head of Household- Married, Living Separately.

What is Filing as Single?

If you were no longer married on December 31 of the tax year and were not qualified to claim head of household or qualifying widow(er) status, you should file as single.

What is Married Filing Separately?

If you are married or are no longer married but were married to your former spouse up until and including the final day of the tax year, you can choose married filing separately as your filing status (December 31). You must file separately if you cannot agree on which filing status to choose. This is because your two separate returns can subsequently be modified (if necessary) into a married filing jointly return. The opposite is not true; you cannot later amend a combined return into two separate returns.

  • Submit separate returns.
  • Keep your home and your child or stepchild there for more than half of the tax year.
  • Claim or waive the child as a dependent; you must pay more than 1/2 of the expense of keeping the household throughout the tax year, and your spouse cannot have lived in your home at any point during the last six months of the year.

What is Married Filing Jointly?

If you can set aside your disagreements, jointly married filing with your spouse may be your best file status. Though you and your husband (or former spouse) were matched through the end of the tax year, you can file a joint return even if you were living apart. If you are legally separated due to a final decree of divorce or legal separation, you cannot file as married unless you are not living apart. You can file as married if you are only separated by an interlocutory (temporary) or final court judgment of divorce.

What other factors should you examine while determining your filing status?

It would be best if you understood how the timing of your divorce affects your tax liability. Joint filers should also be aware of the regulations governing innocent spouse relief.

Divorce Timing

If filing as married individuals (jointly or separately) would be more advantageous than filing as singles, consider postponing your divorce until after the end of the tax year. In contrast, if you finalize your divorce before the end of your tax year, you can file as an unmarried individual, that is, as a single or household head (if applicable). Consider obtaining an order of separate maintenance before the end of the tax year if you want to file as a single individual. This will also qualify you to file your annual tax return as an unmarried individual. It would be best if you crunched the statistics to determine which file status is best for you.

Retirement Plan Division

Divorcing spouses’ retirement funds are frequently divided. However, you should proceed with caution with this task. Withdrawing funds from an IRA or 401k before reaching a specific age, usually 59 and a half, may result in a 10% penalty.

You can avoid the substantial prepayment penalty by preparing a Qualified Domestic Relations Order (QDRO) and submitting it to the court for execution. The QDRO will be sent to your retirement plan administrator by the court.

The plan administrator distributes the funds once the paperwork for the QDRO is completed, and the substitute payee can then withdraw the funds. If you start the money before the process is finished, you will lose the provision allowing you to access the cash penalty-free.

Another factor to consider regarding retirement planning is whether you have any outstanding debts against your retirement money.

While a 401k loan is typically tax-free, if you borrow money from a 401k plan and subsequently liquidate the 401k account, you will most likely have to pay taxes on the funds you took.

Relief for the innocent spouse

When you file a combined return, each spouse usually is jointly and severally liable for the entire amount of taxes due on the return (as well as for any interest and penalties). Even after the divorce is final, you are responsible for any unpaid taxes from previous years unless you qualify for relief as the innocent spouse. Consider using an indemnification provision or an escrow agreement to protect yourself from potential liabilities if you intend to submit a joint return while going through a divorce or separation.

A divorce decision with an indemnity clause stipulates that one spouse undertakes to compensate the other for future tax bills. An escrow agreement can be used to set aside monies for expected future taxes due to a joint return. The IRS is unconcerned about an indemnification agreement or an escrow arrangement, and the IRS can still recover any unpaid taxes from you or your ex-spouse.

When considering a divorce, there are numerous factors to consider. This series of essays aims to familiarize you with the income tax implications of your divorce-related financial decisions, not to make you an expert. You will be able to make informed selections before signing the divorce agreement if you get some understanding in these areas.

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