How Do I File My Taxes While My Divorce is Pending?

By Kelly M. Walsh

At the top of your tax return, the IRS asks for a filing status that, at first glance, is reminiscent of your relationship status on Facebook. This question is not to be taken lightly, though. The selection of married filing jointly, head of household, single, or married filing separately has significant implications on your tax calculation. Filing status is often the subject of audits and can be a red flag for the IRS to conduct further examination of your return. It is important that you choose correctly. In times of transition, such as when you are in the middle of a divorce, the correct answer is not always obvious.

As a general rule, your filing status is determined based upon what your marital status is on December 31st. If you are married on the last day of the year, the IRS treats your taxes as if you were married the whole year, even if you were only married for one day. If your divorce is finalized before the last day of the year, you are treated as if you were not married all year. When you are in the middle of a divorce proceeding at the end of the year, though, there could be more than one correct answer for filing status.

The IRS guidelines reference legal separation as an option to determine you are unmarried for the Single filing status, so some divorcing taxpayers may consider filing as Single, but beware! State law determines whether you are legally separated, and there is no such thing as legal separation in Pennsylvania. If you are a Pennsylvania resident, and your divorce is not final yet, Single is NOT the correct answer!

One correct answer is to select that you are Married Filing Jointly. If your divorce is filed but not finalized before the end of the year, you are still married and are still permitted to use what is often considered the most favorable filing status. Assuming one spouse earns more than the other, using the Married Filing Jointly tax filing status allows more of the higher income earner’s income to fall in a lower tax bracket and be taxed at a lower rate. This may result in lower collective tax liability for the divorcing couple and a larger collective refund than if they filed separately. Filing jointly requires a level of cooperation not all divorcing couples are comfortable with, though. You have to be able to agree to file jointly, get all of your tax forms to the same place, and come together to sign the tax forms. You should also reach an agreement on how any tax debt or tax refund resulting from that joint return will be divided. If one party foots the whole bill or collects the whole refund, it becomes another issue that needs to be litigated in the equitable distribution portion of your divorce.

Another correct answer is to select that you are Married Filing Separately. So long as your taxable income for the year is $300,000 or less, the tax bracket for Married Filing Separately is identical to the tax bracket for Single. However, there are some caveats. You will not be able to take the Earned Income Credit or education credits, and your ability to take child credits will be limited to half of what it would be for a joint return. There is also a penalty for older or disabled people using this filing status, as you cannot claim the credit for the elderly or the disabled, and you must include a greater percentage of social security in your taxable income. An important consideration is whether either spouse itemizes their deductions. If one itemizes, then both must itemize. If your spouse files separately and itemizes deductions, but you do not have enough itemized deductions to beat the standard deduction, you can expect to owe an unexpectedly large tax bill. You would probably benefit from pushing to file a joint return instead. Another concern is that the IRS may apply more scrutiny to returns that are filed using the Married Filing Separately filing status. That status is a tool spouses can use to protect themselves from tax liability for something underhanded their spouse may have done financially. The IRS is familiar with that strategy and may look at your separate returns more closely to determine if one of you may be engaged in some sort of fraud, evasion or similar scheme.

A third option, Head of Household, is only available under very specific circumstances. Your spouse must not have lived in your home during the last 6 months of the tax year. You must have paid more than half of the cost of keeping up your home for the tax year. You must have custody of a child or have another qualifying person. If there is a custody battle, your home must be the main home for the child, meaning you must have custody more than 50% of the time. Head of Household offers a larger standard deduction -- $18,000 as compared to $12,000 for single or married filing separately. It also allows for your income to be taxed at a lower rate by allowing more income to fall in the lowest two tax brackets as compared to other filing statuses. This is likely to be the most favorable tax filing status for those who qualify for it, but you should only use it if you are confident you meet every test to qualify for it. The IRS is likely to push back and challenge using this status if there is any uncertainty. You should be prepared to prove your qualifications for the Head of Household filing status, and you should keep that proof with your tax records in case of an audit. If you have a custody dispute, you should either have the other parent sign a document agreeing that you are entitled to claim the child, or make sure you have proof documenting that you had custody more than 50% of the year and that your home was the child’s main home.

Given that there may be more than one answer depending on the circumstances, and your selection could have a significant impact on your tax liability, it makes sense to consult with a tax professional to analyze your specific situation and recommend the best approach for you.

If you have any questions on divorce and tax issues, or would like assistance preparing your income taxes, please call Scaringi Law at 717-657-7770 and ask about a consultation.