When a Denville divorce lawyer at our firm guides clients through divorce settlements, they typically take a relatively short-term view of what they want to achieve. For them, receipt of the final divorce decree marks an instant end to marital struggles and the beginning of a fresh start. However, if both parties do not consider potential tax consequences during settlement negotiations, they can face serious surprises as they try to move forward with their new lives.
The Benefits of Filing Joint Returns
First, understand that couples who receive their final divorce decree as late as the last day of the filing year are not permitted to file joint returns for that year. That said, couples can choose to file jointly for the last year of marriage, provided their divorce is finalized early in the next year and before they have filed taxes for the last year of marriage.
Title 26 U.S. Code § 6013 spells out the detailed requirements for determining the ability to file jointly, which offers a number of tax benefits, such as the following:
- Standard deductions double for joint filings, even if only one spouse earned all the income.
- Joint tax rates are generally lower for joint filings than for individual filings.
- Joint filers may qualify for certain tax credits that are not available to individual filers, such as earned income tax and child and dependent care credits.
Of course, these and other benefits are not guaranteed and they are certainly not straightforward. Many IRS rules apply that can prevent joint filers from gaining the advantages they expect to receive.
Joint Filing Risks Can Be Profound for Some Divorced Couples
Always remember that divorce can create an adversarial relationship that may not lend itself to retaining the partnership for tax purposes. Perhaps the most notable potential downside of filing joint tax returns involves the issue of joint and several liability. This law essentially holds both spouses responsible for the entire tax liability, not only for the current return, but for any additional tax liability determined by the IRS.
Even if one spouse is fully responsible for that liability, joint filers are held accountable. In fact, the IRS can go after one spouse even if the final divorce decree states that the other spouse is responsible for the taxes. Although the IRS offers several forms of relief for spouses who meet the qualifications, the best approach for ex-spouses is to avoid these complexities by choosing to file individually if they are concerned about joint and several liability risks.
NJ Courts Can Compel Divorcing Couples to File Jointly
In spite of federal tax laws, in some cases, NJ courts can essentially remove the option for the parties of divorce to choose between individual and joint tax filing. This judicial decision may be appropriate when tax considerations are essential to achieve the equitable distribution of property and appropriate alimony awards, or even when the court sees a joint filing as providing the best benefits to both parties.
An attorney with skills and experience in the asset distribution matters of divorce can often help guide clients toward the most advantageous tax filing decisions. They can also provide referrals to reputable tax advisors for complex cases. Call us at (973) 537-1700, or use our convenient online contact form to obtain the support needed to make challenging decisions related to divorce.