Child Support and Taxes in an Iowa Divorce

Divorce can affect your income taxes. Your written settlement agreement should state how you and your spouse will handle:

Dependency Exemptions

Dependency exemptions can sometimes be used to benefit both spouses.

Generally, the settlement agreement will state which parent is entitled to claim which of the children as exemptions for tax purposes, as well as various conditions under which this will change. But the agreement only determines what you and your spouse have decided about who is entitled to the exemption. Under the Internal Revenue Code, section 152(e), the dependency exemption belongs to the custodial parent (defined as the parent with whom the child lives for more than half of the year) unless the custodial parent executes a release. In that case, the release must be signed by the custodial parent and attached to the non-custodial parent's tax return for any year in which the non-custodial parent claims an exemption deduction. The release can cover a single year, specific multiple years, or all future years.

The IRS form for the release is Form 8332. You can find this form by going to the IRS website and in the box on the left side called "Search Forms and Publications" Enter “Form 8332” or for more information about exemptions, enter “Publication number 501.”

Filing Status and Final Return

Filing Status - The filing status of an unmarried, non-custodial parent will usually be "single" and an unmarried custodial parent may be "head of household." A planning idea that can be a win-win in joint custody cases where there is more than one child involved, though, is to have each parent be a "custodial parent" with respect to at least one child. In that way, both parents may qualify for "head of household" status. "Head of household" tax rates are more beneficial that the "single" rate chart.

Final Return - Unless the process of divorce begins and ends within a single calendar year, the final return or returns can be an issue. You and your spouse can execute an agreement on how to share any savings from filing a joint return.

A taxpayer's marital status is determined as of December 31 of the year for which the return is filed. Generally the choice of filing status is between "married filing separately" and a married filing a joint return. If the couple has been living apart for the last six months of the year, it is possible that one of them qualifies as "head of household."

The decision to file a joint return can have an impact beyond the tax difference between a joint return and two separate returns. Taxpayers have "joint and several liability for deficiencies" on a joint return. This means that you are responsible as a couple and that you are responsible individually for errors on your joint tax return. You may be liable for any deficiencies that the Internal Revenue Service finds in your joint return. If you are concerned that your spouse has unreported income, is claiming improper deductions, or anything else the IRS would consider incorrect or improper, it may be wise to forgo filing a joint tax return.

If you decide to file a joint return, you cannot change your mind and file a separate return later. But if you file a separate return, it is possible to file an amended joint return later (Code Sec. 6013(b)(2)). Here is a suggestion for how to approach the situation if you and your spouse could get substantial savings from a joint return, but you are concerned about being saddled with the other spouse's deficiency. You and your spouse can file separate returns. If you later learn that the other spouse's return had no deficiencies, you and your spouse can file an amended joint return prior to the expiration of the statute of limitations, (generally, three years from the date the original return was filed, or two years from the time the tax was paid, whichever is later).

Special Note: If your spouse has (in the past) hidden taxable income from the IRS and you signed a joint tax return for those years, you may be responsible for past due taxes if s/he is caught. The IRS has a special "innocent spouse tax relief" provision that can sometimes help individuals who are wrongfully charged for a spouse’s misstatements on joint tax returns due to no fault or knowledge of their own. It would be unwise to rely on relief from this provision, however.