Divorce is never simple. When a couple separates, they have to pry their lives apart, which can include property, custody, and even tax debts. If the couple filed a joint tax return while they were married, one of them must now dissolve tax obligations to the other. When a divorcing couple owes a tax debt, it can be particularly challenging to arrive at an amicable solution.
In a divorce settlement, each divorce attorney negotiates their respective client’s tax debt. One partner may agree to pay for a larger part of the outstanding debt in exchange for a greater asset share once the court divides them. The final decision about how much each party will pay will be outlined in the final divorce decree, with both parties signing the document.
If a divorce isn’t finalized by the end of the year, the couple is still considered married during that year for tax purposes. Even with a divorce pending, the couple may still decide to file a joint return, as this can sometimes yield larger returns and better tax treatments for both parties while leaving some cash on the table to be considered in the divorce.
However, each party may also decide to file individual returns on their own. Filing an individual return is a great way to remove the risk of an audit in the future.