Common Tax Mistakes During and After Your Divorce

When you take two complex issues—taxes and divorce in this case—you can find yourself in a tangled web of financial and even legal mistakes just waiting to be made. Your first mistake might be failing to seek professional help. A seasoned family law attorney could prevent you from making mistakes that could potentially cost you significantly in the long run.

Some of the most common mistakes made by Atlanta divorced individuals include:

• Name Change. The name on your tax form doesn’t match your Social Security card. If you changed your name back to your “maiden” name following your divorce, you also have to have the name changed through Social Security and get a new card. If you’ve skipped this step, your tax return is likely to be rejected, or your refund delayed.
• Sale of a Property. You failed to take a tax break associated with the sale of a property. If you and your spouse sold your home as a part of your divorce—and the home was your primary residence for at least two of the last five years, there’s a fairly lucrative tax break just waiting for you to take it. If you meet all the necessary criteria, you can deduct up to $250,000 if you file as “single,” and $500,000 if you file as “married filing jointly.”
• Tax Status for Filing. You and your spouse failed to agree on tax status for filing. If you were divorced on December 31st, then you have the choice of filing as married or single—but you both have to agree. If you were still married on December 31^st—even if your divorce became final on January 1^st—then you must file as a married couple. There are certain benefits to each if you have the choice. If you can file as “head of household” and claim your children as dependents, then you might get some pretty decent tax breaks. For higher-income spouses, it might make more sense, financially, to file as married.
• Alimony Expenses. The spouse paying alimony attempts to deduct the alimony as an expense—as of January 1, 2019, alimony is no longer a deductible expense, and the receiving spouse no longer has to declare received alimony as income.
• Child Tax Credit. You and your spouse did not decide on which parent could claim the child tax credit. Since only one of you can claim the credit—and it’s usually the parent who has primary custody—you must have this written into your divorce. Some couples choose to alternate with each claiming the credit every other year, while in other situations, one parent claims the credit for two children, and the other claims the credit for one child—or something similar.
• Retirement Funds. You and your spouse attempted to split up a retirement fund without considering the tax implications. Early withdrawals from retirement accounts trigger stiff penalties. You will need a Qualified Domestic Relations Order, which will have to be applied for before removing or transferring any money from the retirement account.
• Asset Transfers. You failed to consider the tax implications of asset transfers. While assets transferred during a divorce generally do not have adverse tax consequences, you may need to take specific steps to ensure the IRS treats these assets correctly. You do not want them charging you a penalty when they are divided or distributed.
• Refund Sharing. You’re filing jointly and getting a refund, but were not clear on which spouse gets that refund. Your ex may believe he or she is getting the refund, while you may think the issue is not even up for discussion, and that you are getting the refund.
• Tax Deadlines. You waited until the last minute to make all the decisions above, now you are scrambling to avoid missing the tax filing deadline. Make sure you and your spouse have discussed the tax implications of your divorce before mistakes become an issue. Even better, make these decisions a part of your divorce decree, so everyone is crystal clear on the issues.
• Address Change. You did everything right but failed to put your new address on your refund. This is one of the most common mistakes divorcing couples make, along with using the wrong name.

If you prepare your own taxes, make sure everything is correct and that your math is correct as well! Then make sure you make copies of your tax returns and keep them in a safe place. While experts say to keep your tax returns for the past three years, there are circumstances in which you need them even further back. If you did everything right and your taxes are neatly filed, congratulate yourself! If not, remember the mistakes, so you will not ever make them again!

Call Our Experienced Atlanta Family Law Attorneys

At Hobson & Hobson, P.C., our Georgia divorce attorneys know that divorce can affect tax decisions and filing status. We work to help our divorcing clients understand the tax implications of divorce. We advocate strongly for our clients throughout every aspect of the divorce process so that we can protect their futures.

Call us today at (770) 284-6153 or fill out our confidential contact form. We can set up a consultation so that you can review all your legal options.

Sarah Hobson

Attorney Sarah Hobson at Hobson and Hobson, P.C. are powerful advocates for those who fight for better futures for those going through divorce and custody law matters.