With tax time coming, I am asked a lot of questions about divorce and taxes. Here are some things to keep in mind:
1. Transfers between spouses pursuant to a divorce decree are nontaxable.
2. Even if you are divorced, you can file a joint income tax return for the prior year if you were married when the year ended (December 31).
3. If you are divorced and choose to file a joint tax return for the prior year, it is best if you have a written agreement, signed by both parties, stating how the tax refund or tax debt will be divided.
4. A spouse who has received a portion of the other spouse’s retirement plan (a 401k plan, for example) can cash in his or her portion of the plan and does not have to pay the 10% penalty. This can only be done by the non-participating spouse. That spouse will still have to pay federal and state income taxes at whatever his or her tax bracket is, and the receipt of the funds might increase that bracket. If that spouse wishes to roll over the funds into his or her own retirement account (an IRA, for example) in order to avoid any penalty and taxes it needs to be rolled over within sixty days of the receipt of the check.
5. If you sign a joint return with your spouse (or former spouse, if you are filing for the prior year and were married on December 31) will will be jointly and severally liable for the payment of any tax due. And, if the return is amended and a higher amount is due, you will be liable for the higher amount, even if you do not sign the amended return.
If you have questions about this, feel free to call Minnetonka Family Law, LLC and attorney Daniel Fiskum. Our offices are conveniently located in the Carlson Towers, at the intersection of Highway 494 and Highway 394, in Minnetonka, Minnesota.
Call Daniel now at (952) 270-7700 to schedule a free case analysis.