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TAX TIME Advice for SEPARATED COUPLES About JOINT TAX RETURNS

Q. I'm separated from my ex-husband, and we are in the process of a divorce. He has asked me to file jointly on a 2010 return, and I am wondering if this is a good idea. Any suggestions?

Trudy, San Dimas, CA


Trudy:

I am neither a tax specialist or a CPA. As a family law attorney who is frequently asked this question, I can answer it generally (and do answer it specifically for my clients). I would need much more information in order for you to rely upon my suggestions in answer to the question you present to me. This question is highly fact/situation specific.

You refer to your husband as your "ex" which people commonly do even when they are still married but an action is pending, and I am assuming that there was no termination of your marital status in 2010 in answering this question. If your marital status was indeed terminated on or before 12/31/10, you cannot file jointly for that year.

The chief attribute of filing a joint tax return (for couples who remain married at the end of the tax year), besides potential tax savings from better tax treatment for married couples (who must be opposite-sex gendered under federal law), is something called "joint and several" liability for any amounts due and owing either based upon the return itself, or that may arise later if there is an audit and a deficiency is assessed against either/both of you - if jointly filed, the tax assessment will be joint.

If you file jointly and taxes were underpaid or under-reported, the Internal Revenue Service holds you each equally responsible for the entire amounts that should have been paid. In my experience the risk of these sort of deficiencies exists most frequently where one or both parties is self-employed, particularly in a business. People write off all kinds of expenses, and the IRS audits very few returns compared to the number that are filed. Some statistics (Kiplingers) say this one out of 150 personal tax returns. The risk of tax reporting abuse is high where the IRS is relying upon schedule C's. Perhaps obviously, business write-offs are much more susceptible to IRS attack than payrollees - depending upon what salaried employees claim as write-offs.

If you received spousal support in 2010 and you file jointly with the payor, he/she doesn't get that deduction and you pay no taxes on what you actually received. Depending upon the numbers, this may benefit you. There is no deduction for child support for the payor. For more information about "Family Support" please use my on-site search engine at the top upper right of this page.

It is common for me to see people who separated and/or filed for a dissolution in the final quarter of the prior year to then decide to file jointly for that year even where spousal support was paid, because the payor may be better off overall by electing to not deduct the alimony payments that would otherwise be deductible (and therefore taxable to you) in light of other deductions(particularly head of household).Often it is useful to have a tax preparer run the numbers both way - married filing separately and jointly. A major reason for this is the head of household deduction, which gets shared in a joint filing but is only otherwise available to the parent who had physical custody of 50.1 percent or better for six months and a day or more during the prior year (2010). The high earner gets an advantage from this. Again, I want you to check with your accountant.

There may be other benefits that accrue to a child or spousal support recipient where parties file jointly - if parties file jointly, because the California support guidelines are supposed to be "tax-effected" in the sense that people's actual filing status should be inputted into guideline support calculations (see Family Code section 4059), the payor has more "net disposable income" available to pay child or temporary spousal support when they file MFS (married filing separately) or joint. They pay the greatest taxes as "single", and so their support is lowered. However, these advantages only last so long as the marriage has not been legally terminated, whether by bifurcation of marital status or otherwise.

I find that parties are better off cooperating about joint tax filings, when it is safe to do so. If you can file jointly because you are still married, and IF your soon to be ex-spouse gets a benefit from that joint filing (depending upon you receive spousal support or not) that is important to him (or her), I recommend that you negotiate a deal where he/she pays you a tad more support in exchange for helping him/her out on the joint filing. You will also want to agree how to divide any refunds - some or all of this refund may be community property depending on how late in the prior year you separated (monies paid to taxing authorities from community property sources remain community property).

Remember - we want to pay Uncle Sam as little as is legal. We want to make more money available to support children. Take advantage of the bias in favor of married couples when it makes economic sense for you. Cut a deal that benefits you too! This issue may give you important leverage that will help you to support the family in terms of net dollars. Otherwise, given the risks why file jointly at all?



Thurman W. Arnold, C.F.L.S.


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