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Tax Complications to Watch Out for During and After a Divorce

Aside from the emotional and mental turmoil that often accompanies a divorce, you need to brace yourself for any number of issues that may affect your finances throughout the divorce settlement. Problems involving taxes will likely complicate things even further if they are discovered after the settlement, making it absolutely important to work with a component divorce lawyer while you are still in the negotiation stage.

Austin divorce attorney Daniela Lyttle can help you identify potential tax issues and recommend the services of a certified public accountant or tax attorney when appropriate. Listed below are a few examples of such tax issues.

Status of Tax Return Filings for Every Year of Marriage

Most divorce settlements will provide that for each year of marriage, both spouses are jointly responsible for the couple’s federal income tax liability. Both spouses are also entitled to half of any income tax refund for any year of marriage.

This agreement, however, depends on a case to case basis. For starters, you need to check if you have actually filed an income tax return for every year you were married. You should also acquire copies of all of your federal income for every year of your marriage, going back at least seven years. The purpose of doing so is to ensure that, should the IRS determine in the future that you or your spouse owe taxes while you were married, you will have documents to prove otherwise.

Tax Returns After the Divorce

During the year you officially divorce, you will have to file a separate tax return as your marital status of the year will be determine by your marital status on the last day of the year. This means you will have to deal with the months that you were married.

According to Texas law, you have two options:

  • Partition income for the whole year, which means filing as if you were unmarried and claiming only your own income, deductions, and withholding taxes—none of your spouse’s.
  • Alternatively, you can claim half of your spouse’s income, deductions, and withholding taxes but only during the months of the year you were married.

Each option has its pros and cons. Partitioning income tends to be the fastest solution, but it may end up costing you more money than the second option.

Deductions and Exemptions Associated with Children

According to the IRS, a parent can claim head of household status for the child (or children) based on how many nights said parent has guardianship of the child. The IRS also has specific rules on which parent/parents can claim deductions and exemptions associated with raising the child.

During the settlement negotiations, you may agree for one parent to have the right to claim child related deductions and exemptions. It’s important that you talk to your divorce attorney and/or tax professional about this, as you may or may not benefit from these deductions and exemptions.

There are several other examples of potential tax issues that may arise during your divorce. To learn more about them, talk to the legal team of the Lyttle Law Firm. Call our offices today at (512) 215-5225, or use our contact form to schedule an appointment with Austin family law attorney Daniella Lyttle.

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