Typically, before engaging in the divorce process, a married couple files tax returns “married filing jointly.” Other times, the married couple may, after seeking advice from an accountant, determine it is more beneficial for them to file “married filing separately.” The IRS has created a number of benefits to both filing statuses and it is important to seek the advice of a tax specialist to make an informed decision.
This also applies in a divorce situation. Both parties should seek the advice of a tax specialist to determine what filing status is best for them. However, often times in divorce, there is a shift in thinking from what is best for the couple to what is best for the individual. This can lead to one spouse deciding he or she no longer wants to file taxes jointly. For example, one spouse may not want to file a tax return jointly because of concerns about unreported income and/or increased tax liabilities resulting from one spouse’s income. This may cause one spouse, after the divorce complaint has been filed, to dig in their heels and refuse to sign a joint tax return. Are they required to?
Case law in the State of New Jersey is split on the issue of whether a court can instruct an individual in the family court on how to file their taxes. However, a typical case permitting such an order is the New Jersey decision in Bursztyn v. Bursztyn, 379 N.J. Super. 385 (App. Div. 2005):
We do not find persuasive the argument that individuals have a federal statutory right to choose whether to file joint or separate income tax returns which may not be abridged by state courts. In matrimonial actions, courts routinely issue orders which have significant effects on individuals’ rights. For example, courts may infringe upon a parent’s right to relocate from one state to another. Baures v. Lewis, 167 N.J. 91, 770 A.2d 214 (2001). By contrast, limiting an individual’s statutory right to choose between filing a joint or individual federal income tax return seems a minor intrusion.
Id. at 136.
To err on the side of caution, given the ambiguity in the law, couples going through a divorce are typically advised to file in a manner that is in the best interests of the marital estate. In other words, file in a manner that will result in the least liability for the couple as a whole. If one spouse is concerned about liabilities that may result from the conduct or income of the other spouse, then typically the spouse around whose income/conduct there are concerns, should be required to sign a Tax Indemnification Agreement before the parties file jointly.
Alternatively, when a couple is going through a divorce and both parties know they would like to file their tax return jointly, they should then be mindful of the date that their Final Judgment of Divorce is entered. Although a Complaint for Divorce is filed, as long as the parties remain married through December 31, the parties are able to file a tax return as a married couple for that year. However, if a Judgment of Divorce is entered on or before December 31, then the couple is required to file tax returns separately for that year. It is possible and permitted for a divorcing couple to reach an agreement on all of their divorce issues before December 31st, but wait to have their divorce finalized until the new year so that they may file their tax returns jointly.
Contact the New Jersey Family Law Firm of Lyons & Associates, P.C.
If you or someone you know is involved in a divorce or family law matter, contact the skilled attorneys at Lyons & Associates, P.C. 908-575-9777 for a consultation. You can also fill out our online intake form.
Written by: Kristyl M. Berckes, Esq.