Filing income tax returns while a divorce pends can be an especially contentious issue. When one spouse lacks trust in the other spouse, even filing a joint return can be troublesome. Usually filing jointly results in reduced overall tax burden for the still-married couple. But, sometimes filing jointly may result in a greater benefit to one spouse or the other. This may arise when one spouse has higher earned income than the other spouse, an asset titled in one spouse’s name generated significant income, or a spouse failed to make estimated tax payments throughout the year. The acquiescing spouse may agree to file a joint return in exchange for something of value in return, such as a greater portion of the refund or some other concession in the litigation.
For two individuals to file a joint tax return, they must be married as of December 31st of the tax year. If the couple’s divorce was final prior to December 31st of the year, then they are not considered married for the purpose of filing a joint return. Likewise, an individual is not considered married for purposes of filing a joint return if he or she is legally separated. Texas does not have a law regarding legal separation, so this would not apply to a couple seeking a divorce in Texas. Texas law considers you married until the divorce is final.
When spouses file a joint return, they may not later amend to file a married separate return. If there is a dispute about filing a joint return, instead of failing to file or incurring penalties, the spouses may want to file married separate returns and amend to file jointly later. This is better than incurring a “failure to file” penalty, which can run as much as 25% of the total tax due.
There are circumstances where filing a joint return may not be beneficial based on the extent of the marital estate. It is important to get the advice of a highly qualified tax professional to know what is best for your particular situation.
Head of household status comes into play when the divorcing spouses had dependent children. One or both spouses may qualify to file as head of household. If the spouses have lived apart for more than 6 months and one spouse provides more than half of the cost of maintaining the household for the dependent child for more than half the year, that spouse may file as head of household. Filing head of household provides greater tax advantage than filing as single or as married filing separate, but it is generally not as beneficial as filing jointly.
The requirements for head of household are:
1. The taxpayer is considered unmarried on the last day of the year.
2. The taxpayer paid more than half the cost of keeping a home for the year.
3. A child, dependent parent, or other dependent lived with the taxpayer for more than half the year.
Head of household is based on actual custody and may not be negotiated the way a dependent exemption may be.
Hat tip for the background for this article to Brittany Stephens Pearson and her article “Strategic Use of the Tax Filing Status” from the Fall 2014 issue of the ABA Family Law Section’s Family Advocate Magazine.