Going through a divorce is never easy. On top of feeling emotional distress, your mind might be clouded with a million questions, like if the time of year you officially end your marriage impacts your tax benefits. In California, whether or not you are officially married as of the last day of the year determines how you will file for that year. If your divorce is finalized by December 31st, you can file as a single.
There are no glaring tax benefits to divorcing before the end of the year in California, but there are pros and cons that may relate to your specific financial and familial situation. It is a good idea to bring up this question with an experienced divorce attorney, as they can evaluate your specific situation and determine if divorcing before December 31st is in your interest.
Benefits of Divorcing Before the End of the Year in California
In California, there are no immediate positive tax consequences to dividing assets in a divorce. For example, in California, child support payments are not tax deductible, and neither are alimony payments as of January 1st, 2019. However, if you dissolve your marriage before the end of the year and file as single in tax season, you might benefit depending on your specific financial circumstances.
For example, California is a community property state, meaning all of the property and debts acquired during the marriage are the equal responsibility of both spouses. If your spouse accumulated a great deal of debt, divorcing them before the end of the year means you are no longer responsible for that debt come tax season. This can allow you to establish your own individual financial profile that is unaffected by your spouse’s credit history and opens new doors for you after your divorce.
Also, if you have a child and you are entitled to claim your child as a dependent in the divorce, you can file taxes as a single head of household and potentially reduce how much money you owe in taxes.
The potential pros and cons of terminating your marriage before the end of the year can get even more tangled. For instance, if you and your partner are trying to sell your home, finalizing the divorce and the sale of the property before the end of the year can simplify the process of reporting capital gains and losses on that sale. Carrying the divorce into the new year can make the sale even more of a headache and add to your mountain of stress.
Drawbacks of Divorcing Before the End of the Year in California
On the other hand, there are also some potential downsides to divorcing before the end of the year in California and filing taxes as single. Whether or not these apply to you will depend on you and your spouse’s personal circumstances and financial needs.
For example, if your child is going to spend most of their time with their other parent after the divorce, and you divorce before the end of the year, then you lose the ability to claim them as a dependent for that year. This applies even if your divorce was finalized in December and your child spent most of that year with you.
Also, many couples in California are covered by the same health insurance plan, in which one spouse is the primary holder, and the other is called the dependent spouse. The latter might lose health insurance when the divorce is finalized, which can leave them at risk for massive healthcare bills in the event of an injury or illness. In a case like this, some couples choose to stay married until the start of the new calendar year during their health insurance plan’s open enrollment period. Doing this may allow you to seek alternate insurance options as opposed to losing all of your coverage.
Ultimately, whether or not you will benefit from ending your union before the end of the year or whether the pros of doing so outweigh the cons is a context-specific question. The easiest way to get an answer that pertains to your particular marriage is to consult an experienced California divorce lawyer.
Q: How Do Taxes Work the Year You Get Divorced?
A: In California, your marital status as of December 31st determines how you will file taxes the following Spring. If you were legally still married on December 31st, then you will file as married. If your divorce was final as of December 31st, you will file your taxes as single.
Q: Can I File Single if I Got Divorced in December?
A: Yes, if you are divorced in December, you can file as single when tax season rolls around in the early months of the following year. However, you can only file as single if your divorce was finalized by December 31st. If you were living separately from your partner but were still legally married as of December 31st, you still have to file your taxes as married.
Q: Is a Divorce Settlement Taxable in California?
A: In California, the transfer of property involved in a divorce settlement is not subject to taxes. However, if you are married and choose to sell your home in California, you are legally required to pay taxes on the gains from the sale. Up to $250,000 can be excluded if you file separately or $500,000 when you file jointly.
Q: How Do I File Taxes if I Divorce Mid-Year?
A: If you divorce mid-year, you are no longer legally married to anyone as of December 31st, then you file your taxes as single during tax season. If you have children, whether or not you claim them as your dependent during taxes will depend on which spouse was entitled to that during the divorce.
Contact an Experienced California Divorce Lawyer
Taxes can be bewildering enough as they are, and adding divorce into the mix can make them seem even more confusing. But you don’t have to figure this out all alone.
At the Law Offices of Patricia A. Rigdon, we know how stressful it can be to navigate taxes after divorce and how difficult it can be to find guidance for your specific case. We put our clients’ needs first and work hard to protect their rights, no matter what their situation may be. If you’re in need of guidance or support regarding your divorce, contact us today for help.