Margie: If you are preparing to file your tax returns, but what do you do if you’re going through a divorce or a separation? Jonathan Marks with The Marks Law Firm is here this morning with some suggestions. Good morning to you.
Jonathan: Good morning, Margie.
Margie: Yeah, taxes can be difficult enough then you throw in a divorce on top of that, it just got really complicated, didn’t it?
Jonathan: Absolutely. I mean, you know, when you’re married you know what the filing status is typically going to be. When you’re separated and the divorce isn’t concluded, you’re kind of in purgatory trying to figure out specifically what you should do when you get to this time of the year. So the first thing you want to try to figure out is what is going to be your filing status–are you and your spouse going to work together and make it a married joint filing status, or are you going to have to file married as filing separate and really try to divide up what those deductions are going to be between the two of you.
Margie: Alright, the big question I think: who gets the kids? Who gets to file them as their dependents?
Jonathan: Sure, so that happens all the time. When you’re separated and there hasn’t been a final judgment of dissolution entered, it’s sort of first to file. Unfortunately, what you see a lot of times is with electronic filing one spouse runs to file electronically, get that deduction claimed, and really reap the windfall, leaving the other spouse with sort of hanging out there wondering why they didn’t get to claim, even if the kids were living with him or her during the entire period of the year. That results in somebody having to file a paper filing, and as a result of it, having a challenge and an audit eventually through the IRS. The best news for someone in that situation though, regardless to what happens, their divorce is before the court, any refund that is received through the IRS or the State of Missouri is going to be considered marital property and so that short-term windfall for one of the spouses is going to end up being divided right back at the end of the case.
Margie: OK, how does child support factor into taxes?
Jonathan: So normally, the individual who is receiving child support in Missouri is the individual who is going to receive the dependency exemption, so they’re going to be the one who’s going to be able to get to claim the children because the child support formula we use here in Missouri is based upon that individual receiving it. However, there are times where somebody has a true 50/50 custody schedule and what they do is they go outside of what’s called the “chart,” the Form 14, and they can alternate that dependency exemption or exemptions on a yearly basis.
Margie: What are some costs that are tax deductible?
Jonathan: So the most common one that you see is the what they call the Child Care Tax Credit. And so if somebody has those child care expenses, they’re going to want to obviously put those on their return and receive the refund that’s associated with it. The key factor there is you can’t subsequently file and receive that Child Care Tax Credit unless you’re the one that can also claim the children as the dependent that year.
Margie: This does get complicated, doesn’t it?
Jonathan: It is not an easy situation at all.
Margie: Alright, and then what are the tax impacts of dividing property?
Jonathan: So it depends. Most of the time, the attorneys are going to be able to work things out that when you’re dividing assets such as stocks, bonds, mutual funds, even the home, they’re going to be able to avoid the taxable consequences because it’s pursuant to the divorce. But you know, when you get into these types of situations, the most prudent thing to do, and the attorneys will typically work with the parties to know this, is that they’ll want to refer them to an accountant, try to make sure they figure out what the overall taxable consequences are of the situation and work out a game plan so that when you final divorce is complete, you know that you’ve minimized what your tax liability could be or maximized what you’re potential refunds and windfall could be through the IRS and the State of Missouri.
Margie: Alright, Jonathan Marks, thank you so much, family law attorney, we appreciate it.
Jonathan: My pleasure, thank you.
Margie: For more information on The Marks Law Firm, just go to the STLMoms tab.