Does a Divorce Decree Override Tax Laws?
Aug 22, 2023
By Constance Mims
Family Law
Divorce is a complex legal matter that comes with profound financial consequences for your future. Not the least of these are your taxes. While many divorces address the matter of who will be responsible for paying which taxes in the aftermath of divorce, the IRS always prevails. This means that if your ex fails to pay the taxes the divorce decree requires them to pay, the IRS may consider both of you financially responsible – depending upon the circ*mstances and regardless of your divorce terms.
In other words, if your ex isn’t living up to their tax responsibilities in relation to your divorce, it’s time to consult with a dedicated Texas divorce attorney who has considerable experience successfully handling complex tax issues like yours.
Divorce and Financial Matters
No two Texas divorces are ever the same, but every divorcing couple must resolve basic financial terms. One of these is the equitable – or fair – division of marital assets, and another is the matter of who will be claiming the children as a tax deduction. Often, the parent who becomes the primary custodial parent is awarded this financial boost. If, however, the tax benefit would amount to considerably more money for the other parent, they may be motivated to work out alternate arrangements, which can include dividing the tax benefit between them.
Determining Tax Benefits
There are no set legal guidelines regarding tax benefits and divorce. Instead, Texas courts – or the divorcing couples themselves – determine a just and right means of addressing the financial benefit in accordance with the best interests of the involved children and each parent’s legal rights.
Paying Taxes
The matter of paying income tax for the tax year in which you divorce or the tax year in the lead-up to your divorce must be addressed. For example, if it takes you a year to divorce but your finances were completely separate during that year, it may be financially advantageous to file jointly anyway – to get the tax breaks associated with marriage. If this is the route you take, the matter of who will be paying any taxes owed or who is entitled to any tax refunds you’ll be receiving should be addressed in your divorce decree.
If you are still married at the end of the year, you have options regarding filing your taxes, including:
- Married filing jointly
- Married filing separately
- Filing as head of household – if your spouse didn’t live in your home for at least half the year, you paid for more than half the overall cost of running your home for the year, and your home was the primary residence of your dependent children for more than half the year
The year that your divorce is finalized, however, you and your ex must file separately – unless you have remarried or you file as head of household – if this classification applies to your situation. At this point, you can no longer file jointly as a married couple.
If there is a reason to do so, your divorce decree may address the matter of taxes this year – in relation to fair financial dealings and your divorce. This is yet another instance in which you’ll need to follow the directions outlined in your divorce decree, but if your ex refuses to comply, the IRS will deem you – and you alone – responsible for filing separately and paying your attendant tax obligation.
In other words, if your ex chooses to pull a fast one in terms of your divorce decree’s stated tax obligations, you’ll need to take the matter up with the divorce court rather than the IRS.
Taxes and Divorce
Divorce-related tax concerns tend to focus on the year the divorce is finalized, on the year the divorce is pending – if the divorce takes more than a year, which many do – and on child tax credits through the years that they are available to parents. As mentioned, if your divorce hasn’t been finalized in a specific year, you’re both responsible for any income tax that’s due – and if your divorce decree addresses the matter, it should be resolved accordingly. The year that your divorce is finalized, you’ll both file separately. There can, however, be a wide range of tax-related concerns that should be addressed in your divorce decree and should be resolved accordingly.
Your Divorce Decree
If you are going through a divorce and you have resolved each of the terms applicable, it’s only natural to feel like you’ve been through a lot and to be ready to put the matter well behind you. These terms include all the following, and each can require considerable negotiations:
- Your child custody arrangements
- Child support
- The division of your marital property
- Alimony
You’ve finally made it to what feels like the end, and you may not want to put much effort into negotiating tax concerns which can seem remote at this point. The fact of the matter is, however, that the tax implications related to divorce can be immense, and if child tax credits are involved, they can be ongoing. If your divorce has not been finalized, take the time to carefully consider the tax terms included – it can save you a considerable amount of time and money down the line.
Divorce and Taxes
There are specific tax considerations that anyone going through a divorce should take into account.
Alimony
While recipients of alimony used to be taxed on the income while the payor was afforded a tax deduction, this changed in 2017. As such, you won’t pay any income tax on alimony you receive, and if you pay alimony, there’s no tax deduction involved.
Child Support
Child support that you receive from your ex is not taxed on your end. Further, your ex will receive no tax deduction on the amount paid.
Divorce Settlement
In most instances, the property transfers that take place during the divorce process are not taxed. If, however, you’re required to sell your home as part of your divorce, you may owe capital gains tax on any profit realized. There are, however, specific legal means of minimizing these taxes.
The 2-out-of-5-Years Rule
If you lived in your home for at least two out of the last five years cumulatively – rather than consecutively – it meets a use and ownership test that may lead to a tax exclusion for up to $250,000 of gains for an individual and up to $500,000 of gains for joint filers.
Partial Exclusion
Even if you don’t qualify for an exclusion under the use and ownership test, you may qualify for a partial exclusion in relation to your capital gains. If the reason for selling your home is considered an unforeseeable event, the IRS may grant you a partial exclusion. Divorce sometimes qualifies – depending upon the circ*mstances involved – which can make doing some investigating on the matter worth the effort.
Home Improvements
The cost basis of your capital gains has more involved than just the amount your home increased in value – as realized by your profit. You can also take the home improvements that you invested in into consideration. Keeping these receipts and tabulating the total over time can translate to a considerable decrease in terms of your capital gains and, therefore, the taxable gains tax you owe.
If Your Divorce Decree Is Silent on the Matter of Taxes
If your divorce decree does not address the matter of taxes, you’ll need to comply with all IRS tax laws and will have no legal recourse other than a divorce modification regarding those taxes, which may or may not be an option. If this is the situation you find yourself in, you shouldn’t expect any additional tax benefits, and you may face more tax consequences than you anticipated.
The IRS and the Child Tax Credit
The IRS recognizes the custodial parent – or the parent who has the children the majority of the time – as the parent who is entitled to the child tax credit. This said, however, there are special circ*mstances for parents who are divorced, separated, or have lived apart for six out of the tax year’s 12 calendar months. The parent who has primary custody can give the noncustodial parent a written declaration that grants them the right to claim what is called a dependency exemption. This affords them the right to the child tax credit. A custodial parent may be motivated to do so in order to maximize the credit, which can then benefit both parents.
If Your Ex Goes Off Script
Let’s say that your divorce is finalized, and your taxes are specifically addressed in your decree. If your ex doesn’t follow through with their tax responsibilities as outlined in the decree, your only recourse is through a motion to enforce your divorce decree. Divorce decrees aren’t enforceable in terms of the IRS and your tax obligation.
If you and your ex both claim your children on your taxes one year, you should expect it to jam up your taxes to draw out the process significantly. While you may ultimately resolve the issue through the IRS, it will almost certainly take a good deal of effort on your part, and there’s no guarantee you’ll achieve the desired effect.
Filing a Motion to Enforce Your Divorce Decree
In Texas, you can file a motion to enforce a divorce decree in the same court that established the order. To do so, you will need to identify the exact provision that your ex has failed to comply with. If the noncompliance has to do with your taxes, you can expect the court to take the matter seriously.
In your filing, you should include evidence that supports your claim, such as the following documentation:
- Your tax forms and any correspondence with the IRS regarding tax issues or errors
- Your divorce decree
- Documentation regarding your ex’s failure to comply with the tax requirements addressed in your decree
The Hearing Date
Once you file your motion to enforce your divorce decree, the court will set a hearing date. At the hearing, you and your ex will have the opportunity to make your case by presenting evidence. In other words, your ex will be afforded the chance to present counter-evidence that disputes your position. When the dispute involves taxes, however – and if your divorce decree succinctly addresses the tax concern in question – there is generally little wiggle room available to counter the matter.
Your Ex’s Position
If your ex bases their decision not to follow through with their tax obligation on a divorce issue that they believe you’ve failed to address, it will have no bearing on their tax responsibility. Anything that is directly addressed in your divorce decree, including tax obligations, must be abided by – or a modification must be sought.
Your ex can’t take it upon themself to write their own rules in response to some perceived post-divorce wrongdoing on your part. In other words, if your ex has an issue, they’ll need to bring their own motion with the court, and they do not have the legal right to shift their tax obligations as a result.
The court deals with separate issues separately, and unless your ex is successful at obtaining a modification that addresses the tax responsibilities outlined in your divorce decree, it will prevail. The court has the authority to make your ex abide by tax requirements included in your court orders.
Remedies Available
When you file a motion to enforce your divorce decree – and if the court agrees with your assessment of the situation regarding your taxes – there are several legal remedies available.
A Clarification Order
If your divorce decree lacks specificity or clarity on the matter of each spouse’s tax obligations, the court may make a clarification order. Further, either of you can request a clarification order on the issue. If a clarification order is entered by the court, they will allow a reasonable amount of time for enforcement of the tax clarifications to be implemented.
Delivery of Property
If the court determines that your ex owes you money that you would have received – or that you wouldn’t have owed the IRS – if they had abided by the tax agreement in your divorce decree, it can order the delivery of property in that amount to you, which can take the form of money or its equivalent.
Payment of Attorney Fees
If the court finds that your ex failed to follow the tax requirements set forth in your divorce decree, it can also require them to pay the attorney fees you racked up in the process of filing a motion to enforce. This expense is considered the responsibility of the uncooperative party.
Contempt of Court
Ultimately, the court could find your ex in contempt of court for disobeying the divorce decree. Generally, this is reserved for instances in which the spouse refuses to rectify the situation after being directed to do so. Being in contempt of court can lead to fines, probation, and even jail time.
The Power of the IRS
If your ex swiped your child credit or failed to pay a tax obligation that the IRS has levied against you, it’s important to know that the IRS will continue coming after any taxes that it believes are owed – regardless of who pays them. If you were married during the tax year in question, you’re both responsible for the income tax owed, and the IRS will be happy to obtain it from either of you. Further, if your ex already claimed the child tax credits for the year, the IRS will not issue any additional credits for your children.
In the end, the IRS has considerable power, and keeping your tax records straight is generally the best policy. In fact, unpaid taxes can lead to wage garnishments and even to assets being seized. If you’re in the difficult situation of facing a divorce-related tax glitch, the best path forward is generally to square things with the IRS and to seek a motion to enforce your divorce decree through the court.
It’s also worth noting that the IRS may set up a payment plan for you while you address the matter with the court. If the issue is that you paid the taxes and lost out on money that belongs to you according to your divorce decree, you’ll need to take care of it through the court.
An Experienced Texas Divorce Attorney Can Help
Divorce is stressful, and taxes are stressful – and when you combine the two, the stress can increase exponentially. If you put in the effort to establish tax responsibilities that were included in your divorce decree, but your ex is refusing to cooperate, it’s time to address the issue. Further, if you are getting divorced, our attorneys can help you plan ahead for tax requirements.
The practiced divorce attorneys at Mims Ballew Hollingsworth – proudly serving both Fort Worth and Southlake – appreciate the significance of your concerns and have the experience and focused legal skill to help. Learn more by contacting us online or calling us at 817-952-6723 today.
Constance Mims
Constance Mims has over fifteen years of experience practicing exclusively family law. Mrs. Mims is Board Certified in Family Law, by the Texas Board of Legal Specialization. She is Collaborative Law certified and is a shrewd negotiator, not to mention her experience in the most challenging child custody,child support,spousal maintenance,alimony,prenuptial agreements, anddivorce issues, both in court and in the appellate arena.
