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Tax Considerations In A Divorce

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Tax season is upon us once again, and it’s time to consider how any life changes that occurred in the past year, such as a new job, a marriage, or a baby, will affect your filing status. Couples who underwent a divorce in 2018, or who are currently going through the divorce mediation process, may have questions about how to handle their separation and division of assets when it comes to filing their taxes this year. Here are some things to think about when you and your soon-to-be former spouse prepare for your 2018 tax filing appointment, so that you can be sure that you’ve got all your bases covered.

You May Still Be ‘Married’

If you and your soon-to-be ex-spouse are in the process of a divorce but it has yet to be finalized, you are still legally married in the eyes of the federal government, including the IRS. It may be in your best financial interest to keep your tax status as “Married Filing Jointly” one last time before finalizing your divorce. Even if your marriage ended in the early part of 2019, as long as you were still technically married as of December 31, 2018, you may still file your taxes jointly if it makes more financial sense. Ask your tax professional whether filing taxes jointly is the best option for you and your former spouse.

Don’t Forget the Dependency Exemption

If you and your ex-spouse have children, you may wish to consider which of you would benefit most from the dependency exemption. According to Split Simple, a Chicago Divorce Mediation service, this exemption can translate to a substantial tax savings. But it typically falls to the custodial parent, defined by the IRS as the parent who has the child or children for the greater part of the calendar year. However, there are exceptions to this rule: for instance, a custodial parent may sign a written declaration that he or she will not claim the child as a dependent, and the non-custodial parent may attach this declaration to his or her tax return and claim the child or children. This may be part of the divorce agreement, or it may be an arrangement decided upon by both parents in order to alleviate some of the financial burden for the parent who earns less.

Know About QDRO

If you are currently going through a divorce, it’s essential to know how to handle your retirement plan. Specifically, you may want to know what QDROs can mean for you and your soon-to-be ex at tax time. A QDRO is a court order that is signed by a judge and sent to the administrator of a retirement plan. This order can affect the distribution of the plan for your former spouse, as it treats him or her as a distributee, which means he or she will be taxed on the amounts received at the time of distribution. Make sure to speak with your divorce mediation specialist or attorney to understand the full tax consequences of a QDRO before signing your agreement.

The divorce mediation process can be difficult enough to go through without having to think about filing your taxes, but it is a necessary consideration that can’t be avoided. By understanding some of the special considerations that affect you and your former spouse prior to filing, you may be able to save yourself a great deal of time, money, stress, and anxiety. Your divorce mediator and tax professional can help you answer all the questions you may have about filing your taxes once your divorce is final, so that you can be sure that this tax season ends with the most positive outcome possible.