Divorce and Taxes

Deductibility

Divorce is expensive. Taxes are expenses. Marry the two and the year of the divorce can lead to financial devastation. BUT, good news, some of your attorneys fees may be tax deductible. Here is an article discussing when attorneys fees (in pursuit of spousal maintenance or to collect spousal maintenance) can be deducted.

Additionally, miscellaneous itemized deductions can be taken for attorneys fees in excess of 2% of your adjusted gross income (subject to phase outs for income limits and other exclusions).

“Tax planning” is always deductible. So fees in connection with valuing a business, research on the tax consequences of divorce or particular outcomes may be deductible. Talk with you attorney and your tax advisor about the possibility of deducting a portion of your attorneys fees.

Joint or Separate Returns

Many clients ask if they should file joint or separate returns when they have the option to choose. By filing jointly, you will most likely pay less in overall tax. For this reason, most clients choose to file jointly. However, when filing jointly, both spouses are jointly and severally liable for any tax owed. If you do choose to file separately, you will want an indemnification letter signed by both of you. However, this will not be binding on the IRS. It is a good idea to have an accountant examine the previous years returns before making this decision.

Innocent Spouse Doctrine

As an innocent spouse you may have some protection from the IRS for penalties, taxes owed or interest. This protection may be available if your spouse underreported the amount of tax due and has left you high and dry.

Property Transfers