What happens to your income taxes both during and after a divorce is a common point of confusion. This article is not intended to provide you with specific tax advice; we are lawyers, not accountants. The purpose of this article is to describe how income taxes are treated by the family courts so that you may then arm yourself with that information when you have your taxes prepared or prepare them yourself.
It’s my money and I need it now!
A tax refund from any year you were married is considered to be a marital asset subject to division by the courts. Frequently this time of year, we see one party or the other file Married Separate and spend what they consider to be “their” refund. This is a potentially very risky move on your part. It is quite common for courts to require the parties to file an amended return in order to result in a larger refund. The party who files on their own risks having to repay funds to the marriage that have long since been spent and possibly to pay the costs associated with amending a return or other penalties.
As a general rule, it is rarely a good idea to act unilaterally when it comes to a joint marital asset. If you feel you have specific circumstances, such as a spouse who is delinquent in their taxes, bring the matter to your attorney’s attention for further advice.
The kids live with me, why does my ex get to claim them?
Colorado courts divide the dependency exemptions based upon financial support, not based on where the children primarily reside. So long as a party is paying child support, they are providing financial support and are therefore entitled to their share of the dependency exemptions. What exactly a parent’s “share” of the exemptions equals is a question for the court to determine.
Generally speaking, if the parties’ incomes are equal or close to equal, the exemptions are most likely to be divided equally so that each parent claims one child or the exemption for a child is claimed alternately by either parent every other year. If there is a significant difference in income between the parties, the deductions are more likely to be split in proportion to your respective incomes.
For example, if Parent A is earning $6000 per month and Parent B is earning $2000 per month, Parent A is earning 75% of the combined income so Parent A may be entitled to 75% of the dependency exemptions. If there is one child, Parent A may claim the child for three years and Parent B may claim the child for one year. If there are two children, Parent A may claim two children one year and one child the next whereas Parent B may claim no children one year and one child the next.
The dependency exemption is not the only child related tax deduction, however. Colorado courts do not currently divide the Head of Household exemption or the child care credit for example. It may be possible for the primary residential parent to claim certain tax benefits even in a year in which they have no dependency exemptions. Please consult your tax preparer or accountant with respect to any tax benefits you think you may be able to claim.