Considering that last Thursday we celebrated the day of love and friendship, we take the opportunity to talk about two of the less sweet aspects of relationships: divorces and taxes.
Love and taxes
A divorce is a difficult situation from any perspective. Leaving aside the emotional problems that affect those who face it, today we will focus on financial problems when trying to separate assets.
Love and taxes may look like water and oil, but they’re more alike than you think. Lots of marriages have joint accounts, properties or assets that belong to both. On top of that, they have filed their tax returns together for years, taking advantage of it’s extensive benefits.
In this sense, a question arises that many customers bring to our new offices at 8133 Leesburg Pike, Suite 920 Vienna, Virginia: What happens to couples who owe taxes and decide to separate?
Taxes are part of the joint debts of marriages
As a general rule, tax obligations in divorce proceedings work the same as with other debts. Therefore, when lawyers work in divorce settlements, they must determine how much each one’s tax liability is.
For this, it is determined how much income each person manages, including the tax debt, using extracts from bank accounts, mortgage balances and any other debt in general.
If the assets and debts are separated equally, the same happens with the payable taxes: according to the law, they are divided equally and each one must pay what corresponds to him/her.
However, the agreements are not always fair, arguing that one of the two must pay more debts to receive a greater share of the property.
Doing your tax return during divorce
Other of the frequent tax concerns is: what is my status on the tax return during the divorce process? Am I single? Am I married? The answer to this questions depends on the circumstances of your divorce process.
For this effect, if you have a separation agreement of more than 6 months or 1 year, you can declare as single or head of family if you have dependents.
In case you don’t have a separation agreement, or have not been separated for more than 6 months, you can choose to file as married jointly or as married declaring separately, whose status gives you the worst table and makes you lose the tax credits.
It is advisable that you negotiate with your future ex, talk about the tax implications, analyze which are the best alternatives and try to reach an agreement that benefits both of you.
Both are responsible for tax liability
Some people when they divorce do not obtain property or assets, but remain with tax debts. Keep in mind that, when taxes are jointly filed, the IRS will pursue the two people equally for the entire debt after the divorce.
To work these debts, we have several options: before continuing with the separation process you can negotiate the debt in the divorce decree or agreement, ask the IRS to divide the debt or request an Innocent Spouse Relief.
In the last case, the person requesting it may claim, for example, that the income corresponded to the ex and that he did not receive any type of income.
Each type of relief has different requirements and who can qualify for them. You must file to the IRS the Form 8857 to request relief in any of these categories.
Plan and seek expert advice
As we said at the beginning, divorces can be extremely difficult for everyone involved, there are many unique variables to consider.
In the financial aspect, if you have an expert team you will have the opportunity to get ahead of the situation, avoiding paying excessive taxes, or even worse, debts for taxes that do not correspond to you.
If you plan to divorce or are in the process of divorce, and you are wondering where to get taxes done in the Washington Metropolitan Area, you can contact the Global Tax expert team. We all have our tax preparer license.
We are a firm specialized in taxes with more than 25 years of experience solving the tax problems of our clients, offering an affordable tax service. We are ready to support you in this difficult time and address the complicated tax problems related to your divorce.