The decision to end a marriage is never easy. It involves complex emotional and financial considerations that can feel overwhelming. For many couples in Lee County, the timing of the divorce filing adds another layer of stress, especially when tax season is approaching. You may be wondering if it is better to file now or wait until after you have filed your taxes one last time as a married couple. The answer depends on your specific financial situation, but understanding the implications of your filing date is an important step in the process.
How Your Divorce Date Affects Your Tax Filing Status
Your marital status on December 31st of a given year determines your tax filing status for that entire year. This is a firm rule that the IRS applies without exception. If you are legally married on the last day of the year, you can file your taxes as “married filing jointly” or “married filing separately.” If your divorce is finalized by December 31st, you must file as “single” or “head of household” for that entire year, even if you were married for the first eleven months.
This rule creates a significant planning opportunity for divorcing couples. The financial advantages of filing jointly often lead couples to wait until after tax season to finalize their divorce, but this is not always the best strategy. Every situation is different, and what works for one family may not work for another.
Understanding the Different Filing Statuses
The IRS recognizes several filing statuses, and each comes with its own tax brackets, deductions, and credits. Understanding these options is essential for making an informed decision about your divorce timing.
Married Filing Jointly is typically the most advantageous status for most couples. It offers the highest standard deduction, the most favorable tax brackets, and access to various credits that are reduced or eliminated for other filing statuses. When both spouses have income, filing jointly often results in a lower combined tax bill than filing separately.
Married Filing Separately is available to married couples who choose not to file a joint return. This status usually results in a higher tax liability because the tax brackets are less favorable, and many deductions and credits are reduced or eliminated. However, it may be appropriate in situations where one spouse wants to be responsible only for their own tax liability, or where there are concerns about the other spouse’s financial honesty.
Single is the status for individuals who are unmarried, divorced, or legally separated. The standard deduction is lower than for married filing jointly, and the tax brackets are less favorable. However, for some individuals, particularly those with high incomes, the single status may actually result in a lower tax bill than married filing separately.
Head of Household is available to unmarried individuals who pay for more than half of the household expenses and have a qualifying child or dependent living with them. This status offers a higher standard deduction than single and more favorable tax brackets. Many divorced parents qualify for this status.
The Financial Case for Waiting
There are several financial reasons why couples might choose to delay their divorce until after tax season.
The most obvious benefit is the potential tax savings from filing jointly one last time. If both spouses have income, the joint return will likely result in a lower combined tax bill. The exact savings depend on your specific income levels and deductions, but for many couples, the difference can be several thousand dollars.
Waiting also gives you more time to gather financial documents and prepare for the divorce process. Tax returns are a valuable source of financial information. By filing your taxes together, you ensure that both spouses have access to complete financial records. This can be particularly important if one spouse has been less involved in the family finances.
The holidays are already a stressful time for most families. Adding a divorce to the mix can be overwhelming, especially if children are involved. Some couples prefer to wait until after the new year to file, giving everyone time to adjust to the idea of the separation before the legal process begins.
The Case for Filing Sooner
On the other hand, there are compelling reasons why waiting to file for divorce may not be the best choice.
Delaying your divorce means that important issues like child custody, child support, and property division remain unresolved. If you and your spouse are in conflict, this uncertainty can create ongoing stress and anxiety. Children, in particular, benefit from having clear arrangements in place as soon as possible.
The longer you wait, the more time there is for conflict to arise between you and your spouse. Financial situations can change. One spouse may make large purchases, incur debt, or hide assets. If you are concerned about your spouse’s financial behavior, filing sooner rather than later may be the safer choice.
Remaining financially entangled with your spouse can be risky. If your spouse fails to pay taxes owed on a joint return, you could be held liable. The IRS can pursue both spouses for the full amount of any tax debt, regardless of who earned the income or who was supposed to pay. This is known as joint and several liability, and it is one of the most significant risks of filing a joint return with a spouse you no longer trust.
How Divorce Affects Specific Tax Issues
Several specific tax issues are directly affected by divorce. Understanding these issues can help you make better decisions about timing and negotiation.
Child Custody and Dependency Exemptions
The parent who has custody of the children for the majority of the year is generally the one who can claim them as dependents on their tax return. This is known as the custodial parent rule. However, the custodial parent can release the exemption to the non-custodial parent by signing IRS Form 8332.
The dependency exemption can be a valuable negotiating chip in divorce proceedings. If you are the non-custodial parent, you may be able to negotiate for the right to claim the children in exchange for other concessions. If you are the custodial parent, you may be willing to release the exemption in exchange for a higher child support payment or a larger share of the marital property.
Child Support
Child support payments are not tax-deductible for the paying parent and are not considered taxable income for the receiving parent. This has been the rule for many years and did not change under recent tax law reforms. When negotiating child support, both parties should understand that the amounts discussed are the actual amounts that will be paid and received, with no tax adjustment needed.
Alimony and Spousal Support
The tax treatment of alimony changed significantly under the Tax Cuts and Jobs Act of 2017. For divorces finalized after December 31, 2018, alimony payments are no longer tax-deductible for the paying spouse and are no longer considered taxable income for the receiving spouse.
This is a major change from the old rules, where alimony was deductible by the payer and taxable to the recipient. The change affects how alimony should be negotiated. Under the old rules, the tax deduction made it easier for the paying spouse to afford higher payments. Under the new rules, every dollar of alimony costs the payer a full dollar, with no tax benefit.
If your divorce was finalized before January 1, 2019, the old rules still apply to your alimony payments. However, if you modify your divorce decree after that date and specifically state that the new tax rules apply, the modification will be subject to the new rules.
Property Division
The division of property in a divorce is generally not a taxable event. You can transfer assets between spouses as part of the divorce settlement without triggering capital gains or other taxes. However, the tax basis of the assets transfers with them. If you receive an asset with a low basis, you will owe taxes on the gain when you eventually sell it.
This is an important consideration when dividing assets. A retirement account worth $100,000 is not the same as a house worth $100,000 if the house has a low basis and will generate a large tax bill when sold. Working with a financial advisor or tax professional can help you understand the true after-tax value of the assets you are dividing.
Local Considerations for Lee County Divorces
While tax law is federal, the divorce process itself is governed by state law and handled by local courts. In Lee County, divorce cases are heard at the Lee County Justice Center in Opelika.
Alabama is an equitable distribution state, which means that marital property is divided fairly but not necessarily equally. The court considers many factors when dividing property, including the length of the marriage, the contributions of each spouse, and the future needs of each party.
The timeline for a divorce in Lee County varies depending on whether it is contested or uncontested. An uncontested divorce, where both parties agree on all issues, can be finalized in as little as 30 days after the waiting period. A contested divorce, where the parties disagree on custody, support, or property division, can take several months or even years to resolve.
The judges at the Lee County Family Court are familiar with the financial pressures that families face. They will not rush your divorce to meet a tax deadline, but they will also not delay it unnecessarily. If timing is important to you, discuss your concerns with your attorney so that the case can be managed appropriately.
Working with Alsobrook Law Group
At Alsobrook Law Group, we understand that divorce involves both emotional and financial challenges. We help clients in Auburn, Opelika, and throughout Lee County navigate the divorce process with their financial interests in mind.
When you work with our firm, we will analyze your financial situation to help you understand the tax implications of your divorce. We will advise you on whether it makes sense to wait until after tax season or to proceed immediately. We will negotiate a settlement that protects your financial interests and represent you in court if necessary.
Do not let uncertainty about taxes add to the stress of your divorce. Contact us today at 334-737-3718 or through our website to schedule a consultation. We can help you understand your options and make the decisions that are right for your family.
Frequently Asked Questions (FAQ)
Can my spouse and I still file jointly if we are separated?
Yes, as long as you are still legally married on December 31st, you can file a joint tax return. Legal separation in Alabama does not change your marital status for tax purposes. Only a final divorce decree ends your marriage.
Who gets to claim the children on their taxes?
The parent who has custody of the children for the majority of the year is generally the one who can claim them as dependents. However, this can be negotiated as part of your divorce settlement. The custodial parent can release the exemption to the non-custodial parent by signing IRS Form 8332.
Is it better to get a legal separation or a divorce?
A legal separation is similar to a divorce in that it resolves issues like child custody and property division, but you remain legally married. This may be an option for couples who want to remain on the same health insurance plan or who have religious objections to divorce. However, you cannot remarry until you obtain a divorce.
How long does a divorce take in Lee County?
The timeline varies depending on whether the divorce is contested or uncontested. An uncontested divorce can be finalized in as little as 30 days after the mandatory waiting period. A contested divorce can take several months or longer, depending on the complexity of the issues and the court’s schedule.
Should I hire a tax professional in addition to a divorce attorney?
For complex financial situations, working with both a divorce attorney and a tax professional is often advisable. Your attorney can handle the legal aspects of the divorce, while a CPA or tax advisor can help you understand the tax implications of different settlement options.
