A question often arises as to how to handle tax refunds and stimulus checks received while a married couple is going through the divorce process. These government funds generally come by way of direct deposit. The account which receives the deposit depends on the way the taxes were filed.
Married Filing Jointly
If the most recent tax return was “married, filing jointly,” the account listed for the deposit of the tax return will be where the refund and stimulus checks will be deposited. It is assumed that this is an account both parties have access to and where community funds are going.
If the spouses have a good relationship, they can discuss how to divide those funds. If the relationship is not amicable, the spouses’ attorneys or tax professionals work will work together to see that the funds in the account are appropriately divided.
A tax professional can look at the return and the refund and do an analysis to determine how much each party would owe and also figure out who is entitled to how much of the refund.
IRS Considers the Name at the Top of the Return to Be the Taxpayer
IRS considers the name at the top of the return to be the taxpayer. This may mean that the tax return and stimulus check are deposited into an account one party does not have access to. Again, if the divorce is not amicable, the attorneys or tax professionals will need to be involved to be sure the funds are appropriately divided.
Recommendations for Filing the Year of the Divorce
If a couple is divorcing in 2021, if the divorce is final any time that year, even on December 31, they have the option of:
- Filing a joint tax return.
- Filing as single.
- Filing separate and as head of household for the party who claims the children as dependents.
If the divorce is not final by the end of the year, they only have two options:
- Filing jointly.
- Filing married but separate.
Unless there are some underlying issues, such as one party committing tax fraud, or under-reporting of income, it is generally better to file jointly. This gives both parties access to all the information since they can review it all when they sign the return.
This is also less costly since they only pay for one tax return preparation. It can become complicated if one party owns a business, but these are all issues the CPAs can assist with.
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Why Work with a Divorce Financial Neutral?
Divorce is one of the most stressful life events. Emotions run high while important decisions must be made. The couple are trying to figure out how to support two households on the income they previously used to support one. Retirement plans and savings accounts must be divided. A neutral professional financial consultant can assist with this process. Family law attorneys often call on a … [Read More...]
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