As most people are aware, both the federal government and the state of California have postponed the deadline for filing and paying taxes for the 2019 tax year from April 15 to July 15 to provide relief for those facing a cash crunch during the coronavirus pandemic. For those going through the process of divorce at the same time that they are preparing to file their taxes, questions often arise as to what their divorce proceedings mean for their taxes. Ultimately, you will want to speak to a specially-trained tax accountant (which may be different than the accountant you typically rely on) to provide particular guidance on your specific situation, but here are a few general issues to keep in mind.
The Fact That You Are “Separated” Does Not Mean You Are “Single” For Tax Purposes
A basic question in filing your taxes is whether you are going to file as “Married, Filing Jointly,” “Married, Filing Separately,” “Single,” or “Head of Household.” Your particular tax treatment may vary depending on which classification you claim, but in some cases those filing as “Married, Filing Separately” will face higher tax rates on their income than those filing as “Single.” This difference was much more pronounced under prior tax laws, while, under current federal tax law, the differences predominantly affect high earners.
You may think that, because you and your spouse have “separated” in the sense that you are living apart and no longer intend to be married, that you are “Single” for the purpose of federal tax law, but that is not the case. The IRS will look at whether you were still legally married on the last day of the tax year, and, if you were, you cannot file as a “Single” taxpayer. That said, you may be able to file as a “Head of Household” taxpayer (and potentially obtain more favorable tax treatment) if you have dependents living with you, you and your spouse were not living together for the final six months of the tax year, and you are responsible for paying 50% or more of the household expenses.
Otherwise, your options may only be to file “Married, Filing Separately” or “Married, Filing Jointly.” If you do file “Married, Filing Jointly,” this will raise the question of what proportion of the taxes each spouse should pay, and it is not uncommon for the respective family law attorneys for the spouses to negotiate this issue, often in the context of a larger settlement. Keep in mind, however, that filing “Married, Filing Jointly” may well make you liable for issues with the tax return attributable to your spouse’s actions.
Child Support and New Spousal Support Awards Are Not Tax Deductible
Child support is not tax-deductible to the payor nor is it taxable income to the payee, and this has long been the case. Spousal support has historically been a different matter, as prior to last year, it was tax-deductible to the payor and taxable income to the payee, except where the parties reached an agreement to the contrary.
As part of the overhaul of the tax laws passed into law during the Trump administration, spousal support awards finalized on January 1, 2019 or after that date are no longer tax-deductible to the payer nor are they considered taxable income to the payee (spousal support awards finalized before that date continue under the prior rules). This may sound like terrible news for payers of spousal support and great news for payees, and in some cases it is, but the tax treatment of spousal support is generally baked into the determination of spousal support, meaning parties typically reach a lower spousal support number than they might have in prior years to account for this difference in tax treatment.
Who Gets the Dependency Exemptions?
Another issue that should be determined in every divorce where there are minor children is which parent will claim the children as dependents on their respective tax returns. Parents are generally free to negotiate amongst themselves to determine this, and the exemptions can be split up between the parents (for example, one parent takes two additional exemptions for two of the children, and the other parent takes a single additional exemption for the third child), but both parents cannot be claiming exemptions for the same child.
How the parents determine the distributions of exemptions will affect the guideline child support amount in California, as the state-wide formula incorporates the distribution of tax emotions in reaching that figure.
Your Family Law Attorney Typically Cannot Provide Tax Advice
As stated at the outset of this article, ultimately you will want to consult with your own tax accountant in addressing these issues. Family law attorneys by and large can provide you with an overview of the tax issues you can expect to face, but they are not tax experts, and so it will generally be incumbent on you to seek additional guidance to address your tax issues.
Guidance on Your California Family Law Questions From a Westlake Village Family Law Attorney
If you would like to learn more about how our office can provide guidance on any California family law issues you are facing in Ventura County or Los Angeles County, contact the Zonder Family Law Group office today at (805) 777-7740 or (818) 877-0001, or schedule your strategy session using easy-to-use online form here.