There are different “filing status” options for a person filing a tax return. The options include: single, married filing jointly, married filing separately, head of household, or qualifying widow. In order to file a tax return as a married person, you must have been married on the last day of the tax year (December 31st). Divorce cases often last several months or sometimes years before the divorce is final, during which time the parties are still married. Therefore, a couple in the middle of a divorce may choose to file a joint tax return.
Filing a joint tax return often (though not always) saves a couple money on the amount of taxes that they owe. The downsides of filing a joint tax return are that it requires both spouses to agree to it and that each spouse will be jointly and severally liable for the taxes. Joint and several liability means that either party can be held liable for the entire tax burden should the other party fail to pay. The IRS offers some protection against this, for the “innocent spouse.”
Agreeing To File Jointly
Usually both parties must agree in order to file a joint return. In New Jersey, however, one spouse may be forced to file a joint tax return. In Bursztyn v. Bursztyn, the court set forth five factors to examine to determine whether it can compel a party to file a joint tax return. First, the court will see whether there is a financial benefit to filing a joint return. Next, it will look to see if there is evidence of previous fraudulent tax return. Next, it will consider whether the person wishing not to file a joint return earned income during the marriage and ascertain the reason why he or she does not wish to file a joint return. Finally, the court will determine whether there are enough assets to permit the couple to cover the cost of filing separately.
Filing a Joint Tax Return While Divorcing
There are several important considerations to keep in mind when filing a joint tax return while getting divorced. The most important consideration is how a tax refund or bill will be allocated. It is important to discuss the division of the refund or payment with a tax professional as well as an attorney in order to come to a decision. Your tax professional can help you prepare the return accurately and ensure that filing jointly is in your best interest, and an attorney can ensure that the taxes are paid or refunded equitably. A written agreement should be signed with both parties, detailing how the taxes will be handled.
Tax Indemnification Agreement
A tax indemnification agreement protects the spouse who did not prepare the tax return. It states that the party who prepared the tax return will pay his or her share of the tax burden, and will not hold the other party liable if the IRS determines that additional tax is due.
If you and your spouse decide that it is best to file separately you may file ‘married filing separately’. A downside to filing separately is that you must both agree to take the standard deduction or itemize. If one spouse itemizes, you both must itemize. You should talk with a tax professional or your attorney to determine your best course of action.
Filing a final income tax return as a married person is just one part of the untangling of the financial lives of a divorcing couple. If you have any questions about the process please call Peter Van Aulen for a free consultation to discuss your particular situation.
Bursztyn v. Bursztyn, 379 N.J. Super. 385 (App.Div. 2005)