Going through a separation or divorce involves more than just a few papers being signed. It changes many people’s daily lives beyond divvying up who gets what and when. One area of life that is affected by the decision to separate or divorce are your taxes. Filing status, tax breaks, income adjustments based on alimony and payments, claiming dependents, reporting transferral of property, and more all occur with the taxes you will file for the upcoming year(s) to come.
Understanding Marital Status
When choosing to separate or divorce, you will need to make official changes to your tax filing status at your employer(s) to ensure the correct taxes are considered when it comes time to file. However, couples who are going through a divorce and are not yet separated legally by the end of the year must still file as Married Joint, Married Separate, or Head of Household. Once the divorce is final, the individual changing their status can also consider filing as Single.
Updating Tax Information to Avoid Implications
Once divorced or separated fully, it is required for individuals to submit an updated filing status on their Form W-4 to claim the correct withholding tax. Failing to do so could result in missing estimated tax payments if alimony is to be paid.
Another thing to consider if children are involved, is who is claiming them as dependants on their tax return. Even if parents agree on a 50-50 split, they still need to decide on who gets to claim them as dependents. There are laws in place to help come to an agreement if one is not being made quickly enough.
Lastly, reporting property transfers and, or, paying alimony or separate maintenance fees will need to be considered as all can affect the amount of taxes being deducted or paid in as estimates throughout the year which could put someone in a bad financial situation if not paid attention to.
Consider all of the above information if you are going through a separation or divorce as it could save you time and resources to figure out sooner rather than later!