By: Jessica A. Saldin,
Starting in January each year, almost every party in a divorce case has the same question, “How do I file my taxes for the prior year?” As long as you were legally married for the pendency of the entire prior year, you could file married filing jointly. However, many parties ask themselves if, being in the middle of a divorce, that is the best way to file. How to file taxes during a divorce is not an uncommon question.
The first goal is, obviously, to see if you and the other party can agree on how you will file. If you cannot agree, though, the other option is to get guidance from the court as to how you should file. If you have a status conference in your case between the beginning of the year and the filing deadline, you could ask the judge if he or she has any general guidance. The general ruling of the court is that parties to a divorce case should file taxes in the manner most beneficial to both parties. This does not mean that if it is most beneficial to you to file separately you should file in such way, regardless of the impact on the other party. This means the method of filing should be the most beneficial to both parties combined (i.e., it may not be the absolute best way for one party to file but it is better overall for both parties combined). If you do not know which way would be the most beneficial, it is advised that you ask a CPA to run scenarios for both individual filings and a joint filing. After you have both scenarios, average the individual filings and see if that outcome would be better, overall, for both parties or worse. For example, if filing separately would get one party a refund of $5,000 and the other party would owe $2,000 and filing jointly would get both parties a combined refund of $4,000, the most beneficial filing for both parties is filing jointly (that is a combined refund of $4,000 as opposed to a combined net refund of $3,000 from the individual filings). To be clear, this does not mean you have to file jointly. If you both agree to file separately, it is highly unlikely the court would force you to file jointly even if that would be most beneficial. However, if you are unable to reach an agreement, and need to ask the court for assistance, filing in the manner most jointly beneficial is the most likely outcome from the court.
If you do not have a status conference prior to the filing date and/or you ask the court for insight and either the court will not give insight without an evidentiary hearing or you do not agree with the court’s insight, you can generally ask the court for a temporary orders hearing. A prior blog post has discussed the purpose of temporary orders. In this situation, the purpose would be to get clarity as to the tax filing if your permanent orders will not be resolved before the deadline by which to file taxes. If tax filings are the only reason for a temporary orders hearing it is advisable to try to resolve the issue by agreement or request an extension for filing from the IRS. This way you are not asking the court to take time on their docket for a hearing on one issue. However, if that is not possible, the way to reach resolution would be to ask the court for a temporary orders hearing.
Even if a hearing is held, in my experience, the most likely court order is for the parties to file in the manner most beneficially for both, which tends to be a joint filing. However, this is not a guaranteed outcome. If, for example, you have concerns about the other party’s honesty on the tax form (if they are not reporting income you believe they have, if you believe they are incorrectly reporting business expenses, etc.) you could ask the court to allow you to file separately to avoid liability for their taxes. If you are going to take this route, though, you need to have evidence of your concerns. Simply saying you think they will falsely report, especially if you have filed joint tax returns for past years, will likely not be convincing to the court.
The other issue to keep in mind is that, even if you reach a joint agreement to file separately, or if the court orders you to file separately, you still need to resolve who claims what. In other words, you would need to resolve who claims the child(ren), who claims the mortgage interest deduction, who claims any charitable donations, etc. Keep in mind as well that there are IRS standards that also govern some of these claims/deductions, so make sure any agreement or court order as to who claims what follows the IRS Code.
The main thing to make sure you do not do is to rush to be the first one to file separately and claim all the deductions. You may think this puts you in the best position by ensuring you get the majority of the refund. However, if the other party opposes this filing (which, if you claim everything and substantially reduce their refund, you likely will), they can ask the court for relief. In that situation, the court has the authority to order you to amend your refund. You have also likely put yourself in a bad light with the court by choosing to file in this manner. Therefore, it is better to hold off on filing until an agreement or court order as to how to file is reached.
It should also be noted that a federal tax filing is governed under federal law, which supersedes state law. As such, there are arguments that while the divorce court may not have the authority to tell parties whether to file jointly or separately, it could still enter orders on how debt or refunds will be allocated.