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What Tax Filing Status Should Divorcing Couples Choose

New Jersey residents who divorce this year are part of a national uptick in the divorce rate. Divorces declined during the course of the recent recession with 63,550 fewer divorces in America in 2009 than in 2006, but marriage counselors report that 2010 is the first year that the divorce rate will increase since the start of the recession.

Although an impending divorce immediately raises questions regarding parenting time, the division of assets, and alimony, the tax implications of a divorce may be a more pressing issue for many couples. Filing your taxes incorrectly during a divorce can complicate the stress of the divorce process by triggering an audit.

Time Magazine recently reported on the major tax issues for divorcing couples. One of the biggest initial questions that many divorcing couples have is whether they should file as a single or married person.

Filing status is based on the calendar year. If a divorce was finalized between January 1 and April 18 of this year, then the couple is “married” for the purposes of 2010 taxes.

Time Magazine reports that couples who had a divorce finalized in December of 2010 are single for the purposes of the 2010 return, even if they were married for most of the year.

There is also a third filing status called “head of household” which is mostly meant for single parents. There are several important requirements for head of household status:

  • You must have lived apart from your spouse for the last six months of the tax year;
  • You must have paid over half of the cost of keeping up your main residence;
  • You must be able to claim your child as a dependent under the IRS’ rules for divorced parents;
  • You must file a separate tax return from your spouse, even if you are still married.

There are also special rules for what income will disqualify a child from being a dependent. For example, government assistance payments that are received by a child might impact the status of the child.

Divorcing couples who have questions regarding the proper filing status should consult with a professional tax preparer or an experienced family law attorney.

Source: Time, “Divorce and Taxes: Five Things You Need to Know,” Kelly Phillips Erb, 3/6/11