Common Tax Issues in Divorce

taxes_r1. Married filing jointly: Married taxpayers may elect to file a joint return or file as married persons filing separately.   A husband and wife can file a joint tax return provided that a final decree of dissolution or decree of legal separation has not been filed on the last day of the tax year.  Special rules and exceptions may apply to resident and nonresident aliens and spouses of military personnel serving in combat zones.

2. Head of Household: Benefits to filing as head of household include a higher standard deduction, lower tax rate, and ability to claim certain credits (e.g. dependent care credit and the earned income credit). A taxpayer may be able to file as head of household if they meet all the following requirements:

  • Are unmarried or “considered unmarried” on the last day of the year;
  • Paid more than half the cost of keeping up a home for the year; and
  • A “qualifying person” lived in their home for more than half the year

3. Married filing separately may yield higher tax: Married couples who want to be responsible only for his or her own tax may each file separate returns.  There is no joint liability on a separate return.  But in almost all instances, if the taxpayer files a separate return, they will pay more combined federal tax than they would with a joint return. This is because the special rules apply if you file a separate return, such as a higher tax rate, lower deductions, and the disqualification of various credits (e.g. child and dependent care expenses).

B. Joint and individual liability:  Both spouses may be held responsible, jointly and individually, for the tax and any interest or penalty due on a joint return. This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse.

C. Divorced taxpayers: Even after divorce a taxpayer may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before the divorce. This responsibility applies even if the divorce decree states that the other spouse will be responsible for any amounts due on previously filed joint returns.  A hold harmless provision in the decree, however, could be enforced through the divorce court.  (See also Innocent Spouse relief below).