Today’s mini episode is on sharing taxes owed during the divorce process.
There are a couple of approaches that couples take when they are going through a divorce process. And it’s not uncommon that the process can take more than a year, so they may have separated their households, or they are living together but their relationship is over and they’re only working on their divorce, and yet they still intend to file their taxes jointly.
When they come up with what their total tax bill is for the year, they have a question as to how to handle that. Are they supposed to split it 50-50 or in some other percentage? How is it supposed to work? I see couples do a number of things, and I will review some of the most common of the approaches with you.
One would be to say, “Well, let’s see. Our tax bill for the year is $20,000 and we have – in our joint marital savings account, we have – $100,000. We’re going to take it out of that marital savings account and pay the taxes owed.” In essence, that means that you are splitting those taxes 50-50. If you intended to share your joint savings account by dividing it 50-50 between you, and you use it to pay off taxes, you’re splitting taxes 50-50.
Another way of approaching it is to look at what each of the spouses should pay proportionately. Generally speaking, it’s in proportion either to their taxable income, which doesn’t take into account any deductions, or it’s in proportion to the taxes that they would have each owed if they had filed separately.
So you have to ask your accountant for help with that, but basically, they can pretty easily, through their accounting software can show you, what’s the total tax that you would owe if you filed Married Filing Jointly. Oh, it’s $20,000. Well, if you filed Married Filing Separately, the total tax that you would owe collectively is, I don’t know, $25,000. Typically, it’s a little bit more when you’re filing Married Filing Separately. And then, in order to figure out, “Okay, well, we’re going to file jointly, we’re going to owe $20,000 in tax,” in order to figure out how you divide responsibility for it, if you want to do the proportional approach, you would either be looking at the proportion of each spouse’s income to each other and to the whole, or the proportion of each spouse’s separate taxes owed had they filed separately.
The thing that’s key here is to also track how much each spouse has paid toward taxes for the year in question. So both through withholding and through estimated tax payments, often, both spouses have made tax payments toward the total tax owed, and you want to be sure to properly take this into account when you’re trying to apportion out responsibility for the year’s tax bill.
That was our mini episode on sharing taxes while divorcing. I hope it was helpful for you.