How Do You Split a Tax Refund in the Middle of a Divorce?

 Posted on February 17, 2016 in Property Division

Taxes can be complicated even under ideal circumstances. However, when you are going through a divorce at tax time, it can put additional strain on everyone. You will have to decide the best way to file taxes. If you are due a refund, how should the refund be divided? The last thing you need is to create tax problems on top of getting through your divorce.

Choices for Filing Taxes

If you filed for a divorce before the last tax year ended, as long as the divorce was not final in that year, you and your spouse are still able to select the option of “married, filing jointly” on your federal tax return. You can also use the “married, filing separately” option, but most of the time you pay less in taxes or get a larger refund if you file jointly. In some cases, you may be able to file as  “head of household”. You will need to check with your tax advisor to see what your best option is.

It is important to remember that, if you file a joint return, you both need to agree upon what is included on the return. One spouse cannot just sign the other spouse’s name without informing them of the tax filing.

Who Gets the Refund?

Under Illinois law, a tax refund is most likely marital property. One side cannot just seize the refund by virtue of having completed the paperwork. If the two sides cannot agree on the best way to divide the refund themselves, then the court may order that the refund be placed in a trust account until the issue is decided. The refund could be added to the rest of the marital estate and divided by the court during the allocation of property.

There is generally nothing to prevent the two sides from simply agreeing to split the refund evenly between them. Keep in mind, however, that depending on the level of contentiousness regarding other elements of your divorce, you may want to make such an agreement in writing.

What Happens if the Other Spouse Owes a Tax Debt?

Sometime,s one spouse may make decisions that negatively impact the amount of the refund received. Failure to pay child support, for example, may result in the seizure of a federal tax refund. Similarly, if one spouse withdrew money from a retirement account, any tax refund could be applied to any outstanding tax penalty.

The court may find that actions that reduce the tax refund are a dissipation of assets and order the offending spouse to reimburse the other party for the amount of the refund he or she should have received.

If you have questions about the potential tax implications of divorce, contact an experienced Kane County family law attorney. We have skill and knowledge to help you find the answers you need and to explore your options under the law. Call 630-232-9700 to schedule your confidential consultation at The Law Offices of Douglas B. Warlick & Associates today. 

Sources:

https://www.irs.gov/publications/p504/

http://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm