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Settling Tax Issues in an Uncontested Divorce

Thinking about being audited by the Internal Revenue Service (IRS) is extremely stressful. Now, consider being contacted by the IRS for issues/mistakes related to a joint tax return that was filed by an ex-spouse. If you and your ex-spouse did not come to an agreement during your divorce, which spouse is responsible for tax issues once the divorce is final?

Whether it be underpayments or overpayments, you might end up arguing with each other, as well as the IRS. Additionally, during the divorce proceedings those spouses who have children must agree on who will declare their children as tax dependents for each given year following the divorce.

If there are children involved along with alimony payments, the IRS treats the payment of child support and alimony differently.  Generally, child support is not tax deductible to the payor and not taxable income to the payee.  Alimony, on the other hand, is generally deductible to the payor and taxable income to the payee.  Parties may want to consider tax implications when it comes to the classification of alimony vs. child support payments.

Income Filing Status During and After a Divorce

In Massachusetts, there are several steps before a couple is considered legally divorced. For this reason, determining at which point you are no longer considered married filing jointly on your income tax return may seem confusing.

Generally, a taxpayer’s marital status is determined once the taxpayer’s taxable year ends. An individual is still considered as married until he/she is awarded a judgment of Divorce from his/her spouse.

The Timeframe

In the state of Massachusetts, a divorce judgment is initially issued as a judgment nisi. This is temporary and, unless orders from the court state otherwise, it usually becomes absolute after a period of 90 days.

A Judgment Nisi does Not Change Marital Status

Although a judgment nisi is considered a judgment of Divorce, it does not change an individual’s marital status.

The marital status of an individual who is divorced or divorcing depends on the judgment of Divorce that is in effect at the end of the tax year. If the judgment nisi has yet to become absolute, the individual is still considered married and must file his/her taxes accordingly. He/She may choose to file a joint tax return or file his/her taxes as married, filing separately.

If a joint tax return is agreed upon, both parties must sign the tax return. When a spouse is unable to be located or chooses not to file a joint tax return, the individual will have no other option than to file the married, filing separately return.

If by the time the tax year ends the judgment nisi is absolute, he/she now has a ‘single’ filing status.

If you are getting ready to file for divorce or want to learn more about taxes as they relate to divorce, contact Infinity Law Group.