It’s that time of year – tax season. If you are in the process of getting divorced in Texas, you should be aware of the variety of ways that divorce can have tax consequences. With prior planning, you may be able to avoid or minimize a tax hit. At a minimum, you will be aware of how your taxes will change in the year following your divorce.
Filing Jointly or Separately
Prior to finalizing your divorce, you can choose whether to file Married Filing Jointly or Married Filing Separately. If the timing of the divorce is close to tax day, is it better to file one or the other?
It depends. If the two of you are able to work together, it may be financially preferable to file jointly. Joint filers typically can earn more and still qualify for various tax breaks. They can take a higher standard deduction. Joint filers qualify for a variety of exclusion and credits. You may want to prepare your tax returns both ways to see which works out better for both parties.
If you do file jointly, know that you could be held financially responsible for paying the taxes owed even if your divorce decree says your former partner is supposed to pay. If they don’t follow through, the IRS will come to you. And you could end up taking your ex back to court for failing to follow a court order.
Do you have reason to believe your soon-to-be ex-spouse lied or made errors on your joint tax return? You could be held liable for fines associated with that return if they are audited. You can be relieved of responsibility for their mistake by filing for Innocent Spouse Relief (Form 8857).
Who Has the Home Mortgage?
For many people, the mortgage interest deduction is their biggest deduction. It makes a big difference on the final amount they owe. If you need to sell your home, or your former spouse keep the home, you will no longer have mortgage interest to deduct.
Even if you keep the home, as a single filer you may not be able to claim as large a deduction as when you were married. The loan amount for which one can deduct interest was reduced in the 2017 tax overhaul. It’s a hefty $750,000 for joint filers. Single filers are limited to $375,000. Talk to a tax accountant to understand how this may affect you.
Pay Special Attention to Retirement Assets
Finally, the transfer of some assets can trigger taxes and penalties if not done properly. These assets include pension funds, retirement funds, savings plans, annuities, brokerage funds, and stock options. Work with an experienced divorce lawyer who can advise on this matter and who can prepare a Qualified Domestic Relations Order (QDRO) if that is needed.
If you took a distribution from retirement funds to help pay for your divorce, that may have tax consequence, depending on your age. This is another issue to talk over with a professional tax advisor.
Call the Fort Worth Family Law Office of V. Wayne Ward for Help
Your divorce lawyer is working to protect your financial future, and that includes negotiating financial details that can have tax consequences. Talk with your divorce lawyer about your concerns. If you are looking for a divorce attorney in the Fort Worth area, call the Law Office of V. Wayne Ward: 817-789-4436. We are here to help.