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Tax Options For End of Year Divorce

November 22, 2019

How are taxes handled next spring for couples who are in the midst of a divorce and unsure if it will be finalized by the end of the year?  Various possibilities exist and should be written in the separation agreement to avoid costly mistakes and future disagreements.


The following options are available depending upon the uncontrollable factor of a decree being issued on or before December 31st.  Therefore, it is wise to include arrangements for either scenario. 


*It is always advised to seek professional tax advice regarding your personal situation*

Options When NO DECREE Issued Before December 31st:


Married Filing Jointly

This option is only available to couples whose divorce has not been finalized by the end of the year.  Generally, this option achieves the lowest tax burden to the overall marital estate.  Even though it maybe unknown at the time of the agreement unless a tax estimate is completed, a couple should address how they plan to split tax refunds or payments due (i.e. 50/50). 


There are situations when filing jointly may not be the most effective tax choice for an individual or the couple.  For example, if there is a large income or tax withholding disparity between the couple or large student loan debt in one individual’s name among other possibilities, it maybe advantageous to consider other tax filing options such as Married Filing Separately.


Standard Deduction (2019): $24,400


Married Filing Separately

This option should be considered when a spouse does not trust their partner’s financial reporting (i.e. hidden assets, fraud concerns, etc.) or if an exception to joint filing as listed above may exist.  It is best to explore this option with a tax professional because many tax benefits available when filing jointly are either significantly minimized or not available when filing separately.


Standard Deduction (2019): $12,200


Head of Household

Filing Head of Household can be an option for a legally married individual if the couple has not been living together for the last 6 months of the tax year (July 1st through December 31st) and the taxpayer can claim at least one dependent for half the year or more. 


The IRS enacted the Abandoned Spouse Rule to prevent a partner from leaving the home essentially forcing the staying spouse to use unfavorable Married Filing Separate tax rates while supporting dependents.  The increased standard deduction is significantly higher then Married Filing Separately and many of the other minimized tax benefits do not exist.


Standard Deduction (2019): $18,350

Options When DECREE ISSUED Before December 31st:



If a divorce has been stamped by a judge on or before December 31st and no children or other dependents exist, the only available option is an individual filing.  Working spouses will either be solely responsible for their tax due or will receive their refund and not required to share unless agreed upon otherwise.


For an individual that is not employed (i.e. a stay at home mom) and has no wages this typically means there is no income tax due, or very little, assuming no other taxable events were triggered during the year; for example, an investment was sold and triggered capital gains, taxable investment earnings were received that were awarded to the taxpayer, or a distribution was made from a retirement account, etc. 


Standard Deduction (2019): $12,200


Head of Household

Filing Head of Household is the most financially beneficial tax filing post-divorce and can be claimed as an unmarried individual.  If a divorce has been finalized during the year, the Abandoned Spouse Rules as discussed above does not exist.  The only requirement to that must be met, other than not being married, is the dependent rules which state a taxpayer must have the majority of overnights with a dependent during the tax year and provide at least half or more of their support.


The overnight requirement is a separate issue from child exemption or credit agreements that maybe shared post-divorce.  For example, if the agreed upon parenting plan provides a parent with 183 overnights or more during the year yet for the given tax year the other parent claims the child credit(s), the parent with the majority or overnights can still file Head of Household.


If there are two or more children in a family where 50/50 custody exist, planning can be done ahead of time where both parents can claim Head of Household each year if addressed properly in the parenting plan.


Standard Deduction (2019): $18,350



If you are nearing the end of your divorce and unsure if it will be finalized by the end of the year, it is important to consider and address in your separation agreement potential tax outcomes.  Completing a tax analysis is prudent to know where you stand to negotiate various outcomes.  Once paperwork is filed and a decree is issued, making changes or addressing items that were left out becomes more expensive and difficult post-divorce.