Kelly Wilson Blog | Tax Considerations in a Divorce | TalkMarkets

Kelly Wilson

Financial Analyst
Kelly Wilson is a professional writer who has years of experience writing about many topics.

Tax Considerations in a Divorce

Date: Thursday, January 31, 2019 7:51 AM EST

As tax time approaches, it's important to consider how any life changes that occurred in the past year, such as a new job, a marriage, or a baby, will affect your filing status. For couples who underwent a divorce in 2018, or who are currently going through the divorce mediation process, it may be unclear how to handle their separation and division of assets from a tax standpoint. Here are some things to think about when you and your soon-to-be ex-spouse prepare to file your 2018 taxes, so that you can be sure that all your bases are covered with the IRS.

You May Still Be 'Married'

If you and your soon-to-be former spouse are in the process of a divorce but it has yet to be finalized, you are still married in the eyes of the federal government, including the IRS. According to Split Simple, a Chicago Divorce Mediation Service, it may be in your best financial interest to keep your status as "Married Filing Jointly" one last time before your divorce becomes final. Even if your divorce was finalized in the early part of 2019, as long as you were still technically married as of December 31, 2018, you may still file your taxes jointly if it makes better financial sense. Ask your tax professional whether filing taxes jointly is the best option.

Don't Forget the Dependency Exemption

If you and your ex-spouse have children, you may wish to consider who would benefit most from the dependency exemption, which can translate to a significant amount of tax savings. Typically, this exemption falls to the custodial parent, defined by the IRS as the parent who has the child or children for the greater part of the calendar year. However, there are exceptions: a custodial parent may sign a written declaration that he or she will not claim the child as a dependent, and the non-custodial parent may attach this declaration to his or her tax return and claim the child or children. This may be a part of the divorce agreement, or it may be an arrangement decided upon by both parents in order to alleviate financial burden.

Know About QDRO

If you have a retirement plan and are currently going through a divorce, it's essential to know about QDROs and what they can mean at tax time. A QDRO is a court order that is signed by a judge and sent to the administrator of a retirement plan. This order can affect the distribution of the plan for your former spouse, as it treats him or her as a distributee, which means he or she will be taxed on the amounts received at the time of distribution. Make sure to speak with your divorce mediation specialist or attorney to understand the full tax consequences of a QDRO before signing your agreement.

Going through the divorce mediation process can be difficult enough without having to think about filing your taxes. By understanding some of the special considerations that affect you and your former spouse prior to filing, you may be able to save yourself a great deal of money, stress, and anxiety. Your divorce mediator and tax professional can help you navigate the murky waters of filing your taxes once your divorce is final, so that you can be sure you get the most positive outcome from tax filing season.

Disclaimer: This and other personal blog posts are not reviewed, monitored or endorsed by TalkMarkets. The content is solely the view of the author and TalkMarkets is not responsible for the content of this post in any way. Our curated content which is handpicked by our editorial team may be viewed here.

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