Wisconsin is a marital property state, meaning that each spouse has a one-half interest in the total assets and income of the marriage. This rule requires some careful tax planning to achieve the best outcome. Following are some issues to consider:
- Couples generally file married joint tax returns during a marriage. However, after the separation, former spouses must file as either single or head of household. The IRS rules governing filing status are rather particular. Violation of those rules, even by mistake, may lead to an audit and tax recalculation.
- Post-divorce, couples must determine who will claim the child(ren) as exemptions. The same goes for child care credits.
- The deductions for real estate taxes and mortgage interest must be calculated. If the marital home is sold, couples must carefully consider potential taxes. Short sale or foreclosure of the home presents special tax considerations that can substantially increase taxes due.
- Outstanding tax refunds must be allocated. Taxes owing must be allocated and plans made for payment to avoid penalties.
- If a business is involved, the parties must be sure to calculate business income correctly. This is particularly true since businesses often calculate income based on a different fiscal year.
- Concerns about possible false tax filings during the marriage must be addressed clearly, and responsibility allocated between the couple.
- Child and spousal support must comply exactly with IRS rules to avoid future tax problems.
Failure to anticipate tax consequences can have serious effects, even many years after the divorce. In many cases, the above tax rules also apply to unmarried parents in paternity matters. It is wise to consult with an experienced attorney to ensure that these and other tax issues are covered to avoid an unpleasant surprise down the road. I am happy to consult with couples and parents on family-related tax and other matters.