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The Timing of Your Final Judgment of Divorce Could Have Tax Implications

By David A. Beaver

As another year is winding down, it is important to consider whether or not you should hold off with the entry of your Final Judgment of Divorce until calendar year 2012. I know that many of you are reading this and thinking that another day married to your soon-to-be former spouse is one day too long to handle – however, there could be significant tax benefits to filing jointly one last time.

First, it is important to note that the Internal Revenue Service does not permit you to file under a 'married' status unless you were legally married on the last day of the previous calendar year.
However, your case does not have to stall and negotiations to resolve your matter can continue, as you are permitted to have an executed Marital Settlement Agreement prior to the end of the calendar year.  If the end of the year is approaching and you have an executed Agreement, it is common to petition the Court to adjourn the Final Judgment of Divorce hearing. While the Court has no obligation to grant your adjournment request to the next calendar year, judges often grant such requests if there is a clear financial benefit to the parties.

Strategic decisions to hold off the Final Judgment of Divorce hearing are often agreed upon between attorneys in scenarios in which one client would be adversely impacted by a forced single tax filing.  One such scenario would be the case in which marital assets were liquidated during the litigation and tax consequences exist. (i.e. capital gains taxes, early withdrawal penalties/taxes of retirement accounts, etc.)  As many of the redeemed funds were often acquired during the marriage, the parties may minimize the tax burden (lower effective tax rate) by filing jointly and avoid the need to offset the credits through equitable distribution.

I have also experienced scenarios in which the parties have made the decision to hold off a Final Judgment of Divorce to file jointly despite having an executed Agreement to maximize the amount of financial aid for their children.

Please note that before any decisions are made regarding the benefits or possible pitfalls with filing designations during your divorce matter, it is essential that you consult with an experienced divorce attorney as well as a licensed Certified Public Accountant to review the various tax implications of your decision.

Full post as published by New Jersey Law Blog on November 15, 2011 (boomark / email).