Question from a reader:”I am divorcing my wife. We are parting ways amicably and what should we be worried about in terms if taxes?”
My answer is that you should first pat yourselves on the back that you are planning your divorce. It will prevent a lot of problems and help try to keep some semblance of a connection even if there shouldn’t be a connection in place anyways.
First off – Make sure that if there are any children that they are taken care of. That means that if there is child support that the mechanisms are in place, the same holds true for alimony. Get everything in writing and try to set things up for yourselves rather than have a judge make mandates. If it has to come to that, believe me, it will. Make sure that the children aren’t fought over as chess pieces (specifically pawns) that are used to manipulate favors and get the kids to love you more than the other parent. If you don’t want to take care of the kids, get that surfaced but be aware that you will have to do something whether it is in terms of monetary compensation (child support) or something that may include you in their lives. If there are reasons that you shouldn’t be in their lives, you may want to talk to a mediator and possibly a therapist. Try and get your spouse to come along as well. It won’t be easy but if you both are trying to make things work it is a great opportunity.
Second – Make sure that you both are planning for taxes in your new tax status situation. That’s right. It will be coming and come up fast. That means that if you have one or multiple children that you want to split the Head of Household benefits with you should work that you and write it down prior to the next tax year when it is too late. Get familiar with this form. Form 8832, Release/Revocation of Release of Claim to Exemption for Child By Custodial Parent, can be used for alternating the exemption for the child or children.
Every year I have at least one tax return where one parent thought they were going to take the Head of Household status and their tax return would get kicked back electronically because the other spouse had already claimed the child. While that sounds like a great basis for a situation comedy, it generally leads to annoyance at the very least and aggravation and possible violence at worst. Work through this jazz in advance so you don’t have problems and respect each other enough to stick to whatever agreement you come to unless circumstances demand a change. In that event, talk about it.
Third – whoever gets the house gets the mortgage insurance deduction as well as the property tax deduction for Schedule A. That is just the tip of the iceberg. For other possible credits like the child tax credit, additional child tax credit and who knows what else you two as a couple were enjoying as a credit, be aware that some of the credits one spouse can still take if they are claiming the child and in some cases you may both lose the credit depending on the qualifications for it. Visit www.irs.gov for more info or email me and we can talk about your specific situation.
Fourth - Make sure that you each get a copy of the last tax return that you are both doing jointly as a married couple unless their are mitigating circumstances (like your spouse tried to run you over with a car). We are talking about keeping things amicable and civil. You both can look over the tax return and start deciding what and how you can work things out way before the next tax year happens and things get to a flash point. There are enough levels of stress out there coupled with high unemployment, underemployment and general anger. Don’t add to your situation’s complexity by avoiding talking about the issues.
Fifth – If either of you two are remarrying right away, try and make sure that mechanisms are in place for the children and for your own respective sanity. No matter what happens, the children are still both your kids. Unless there was something nasty in the situation both parents are entitled to visitation rights. Don’t turn the visitation rights into a bargaining chip or boulder to handle over your ex-partner’s head.
Make sure that any new husband/wife understands the tax situation and buys-off on whatever it is you and your ex-spouse are working on or have worked out. It will be better off for all parties in the long run and you should be communicating with your new husband/wife anyways because you are marrying them because they will be working to make a better life for the two of you instead of your ex-spouse, right? The new spouse has feelings and opinions and it may be hard enough at first for that person to accept the situation so be grateful that they are trying and work through things with them as well. Meeting people at least halfway will keep the peace in the house.
In situations where both of you (the divorced) are dead nuts broke and both are still living in the same house (please don’t laugh, this is very common because we are in a Depression), you both have to treat each other as room mates and you should work out who gets the house as the deduction and even with that you both may be able to split the mortgage interest and property tax if both of you are still splitting the payment even if it is in one person’s name and you are divorced.
Make sure both of you adjust your W-4 tax forms at work for your new filing status and have either more money taken out or less depending on whether you are going on your own now or going to be receiving any tax benefits as part of the divorce. If you are in a business, you both should discuss if for monetary reasons that you should continue to be business partners. Sometimes you can do great business with a person but find out that you can’t live with them. If you both can keep home out of the office, you may want to (or have to) keep working together in a partnership or corporation.
I could go on for hours – if you need tax advice about this specifically, please post and/or email me. I can help you and offer to do your tax returns and plan for them as well.
As for my reader who was gracious to post this timely question, I hope I was able to answer your question. Good luck to you, your ex-wife and any children that you may have. May you have joy, peace, happiness and profitability.
March 22 2009
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Kim Isaac Greenblatt
Plan For Your Divorce
