The importance of tax returns in divorce proceedings


Joint Filings:

Many times during a divorce, Parties are tempted to file taxes as “married filing jointly.”  Usually, but not always, your tax burden will be lower filing jointly, depending on your respective incomes, deductions, and credits. The main disadvantage of filing jointly is that both spouses are jointly and severally liable for taxes on the return, including any tax deficiencies, interest, and penalties. There are some pitfalls to doing so.  First, you may be making yourself liable for unreported income of the very spouse that you are trying to get away from–and whom you don’t trust.  Second, you may be certifying that you agree with what your spouse’s income really is.  Third, you may have to split the refund with your spouse, when you would have received a (smaller) refund that would have been yours.  You may want to have a tax professional run your tax return multiple ways before making a decision.Tax-form

Important Information Revealed:

Tax returns can also be a treasure trove of information.  Returns may show depreciation that you can add back into the Dissomaster as income to the party taking the depreciation.  Returns may indicate other itemized deductions which would need to be put into the dissomaster, like unreimbursed employment expenses.  Unreimbursed employment expenses are things that TurboTax users seem to never forget, but then when it comes time to fill out an Income and Expense Declaration, their memory goes blank.  Tax returns may also provide insight into undisclosed assets.  A litigant may not disclose interest bearing accounts, but then report interest earnings on their tax returns.

Although rarely complied with, Ventura County Local Rule 9.18 requires the production of a litigant’s previous year’s tax return at the time of any hearing regarding financial matters (i.e. support, attorney’s fees).  The court may impose sanctions for a litigants failure to produce their tax return at the time of the hearing.  Making sure that your attorney takes a good look at that tax return at such a hearing may provide important information that impacts the outcome of your hearing.

The Marital Standard of Living:

As long term support is based in part on the marital standard of living, past years tax returns from during the marriage can be an important tool to discovering what the marital standard of living really was.  Your attorney may also want to analyze the effective tax rate during the marriage, as that may have an impact on what the actual net spendable income was during the marriage, as opposed to simply looking at the gross incomes.

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