Tax and Divorce, Annulment or Legal Separation

Tax and divorce issues permeate family law cases. Tax returns are included in Colorado's mandatory disclosures in family law cases, and virtually every aspect of a divorce, property settlement, child support or alimony has tax considerations. This is an overview of the consequences of ending your marriage in Colorado through dissolution of marriage, annulment or legal separation. And while most family law attorneys have developed a working awareness of divorce and tax issues, we are not tax experts, and for more complicated cases, you should consult with a CPA or other tax professional.

The Colorado Family Law Guide has three in-depth articles on the role of taxes in family law cases:

• Tax and Divorce - This article.
• Alimony Tax & Child Support Tax Laws - discusses using tax documents to prove your case, and the tax consequences of family support.
• Tax on Divorce Settlement - Addresses how tax documents can confirm what retirement and other assets a spouse may have, and how taxes may affect the division of marital assets and debts.

Note that we at Graham.Law are family law attorneys, not CPAs. While we can provide general guidance, if you have any specific divorce tax questions, you should consult with a tax professional.

Role of Tax Documents in a Family Law Case

IRS Documents are a Mandatory Disclosure in Colorado

In every dissolution of marriage, legal separation or annulment case, the spouses are required to disclose three years of business and personal tax returns and records. See C.R.C.P. 16.2(e)(2), and the referenced Form 35.1 Mandatory Disclosure, which requires the returns, and "all schedules and attachments, such as W-2s, 1099s, and K-1." For a more detailed discussion of family law disclosures, see our Financial Disclosures in a Divorce article.

Subject Matter Jurisdiction Requires One Spouse to be Legal Resident of Colorado

Pursuant to C.R.S. 14-10-106(1)(a)(I), one of the spouses must have been a resident in Colorado for at least 91 days prior to filing the dissolution of marriage action. For more information, see our Requirement for a Divorce in Colorado article.

Normally, if a spouse lives in Colorado, that alone is sufficient to establish that spouse is a legal resident of the state. However, in a divorce where one spouse is in the military, it's possible for both spouses to live in Colorado pursuant to military orders while maintaining legal residences in other states.

If the spouses were Colorado residents, they will file a DR Form 104 Colorado Individual Income Tax Return. However, if one of them was a non-resident, then they will have filed a DR Form 104PN Part-Year Resident/Nonresident Tax Calculation Schedule which has a section at the top to specify exactly which spouse was a resident of Colorado and for which dates. See this image for details.

Additionally, the taxpayer's  Form W-2 Wage and Tax Statement, has a Box 15 which reflects the state where the employer withheld and paid state income taxes to. If the state is one with no income tax (e.g. Texas), the Box 15 will simply reflect the state, but not any actual withholding.

Personal Jurisdiction Over Respondent Spouse

While a Colorado court can proceed with a divorce with subject matter jurisdiction alone, in order to enter meaningful orders it must also have personal jurisdiction over the respondent spouse. If the spouse is not served with the summons inside Colorado, and does not consent to jurisdiction, then another way to establish his legal residence is to show that his tax records reflect he is a Colorado domicile.

Or, if the respondent spouse is in the military, one of the grounds for the Court to assert jurisdiction to divide the military pension in a divorce is that the military member maintained Colorado as his state of domicile. See our article Jurisdiction to Divide Military Retirement in the Military Divorce Guide for more information.

Marital Status on Tax Return to Help Prove Common Law Marriage

Colorado is one of the few states which has common law marriage (see our Common Law Marriage article for a complete discussion), and if the parties do not agree that they were married, then among the more important pieces of evidence of marriage is whether or not they claimed to be married to the IRS for tax purposes.

While a joint tax filing is not completely conclusive evidence of a common law marriage, it is probably the single most important factor in the eyes of most courts, at least when the couple is not a same-sex couple that was prohibited from filing joint taxes before same-sex marriage was legalized. After all, if both parties swore to the federal government in their tax returns that they were single (or married, for that matter), the spouse seeking to contradict the returns has a steep burden to overcome.

The very top of the first page of the IRS Form 1040 U.S. Individual Income Tax Return has the taxpayer's filing status - married or single. And in a common law marriage case, you will need tax records as far back as possible to prove or disprove a marriage exists.

Divorce Tax Questions - Filing Status

First, note that your IRS filing status (married or single) depends upon the timing of the divorce. If you were still married on 12/31, then you can file as a married couple, which typically would result in tax benefits.

This is consistent with the rest of the tax code - a couple who was married late in the year still filed as married, despite being single for most of the year. And a child born on 12/31 means a tax credit for the whole year, not just a pro-rated one day.

Filing Taxes While Common Law Married

A common law marriage in Colorado is just as legal as a ceremonial marriage. So common law spouses should file as married, not as single.

Taxes During Divorce Process

While separated and pending divorce, the couple is still married, so must file taxes as married filing jointly or married filing separately. While one spouse may have an advantage in filing separately, as a couple it typically will benefit both spouses to file jointly, as that tends to maximize their combined refund or minimize their combined liability.

Courts have the power to order a joint tax filing: "The federal tax code provisions do not deprive the dissolution court of jurisdiction to enter orders as between the parties." Lafaye, at 461. And in our experience, judges do just that.

Tax Filing After Divorce Decree

Once a divorce decree enters, the couple is no longer married, and if it entered prior to December 31, each former spouse must file taxes for the year of divorce as single, unless they qualify for a head of household filing or remarried during the tax year.

A divorce prior to 12/31 means filing as single even if the couple was married for most of the year. 26 U.S. Code § 7703(a)(1). Or, per page 3 of IRS Publication 504, Divorced or Separated Individuals: "You are unmarried for the whole year if... you have obtained a final decree of divorce or separate maintenance by the last day of your tax year."

Legal Separation Tax Filing

Spouses who are legally separated should file taxes as single (or head of household, if they qualify), not as married.

Colorado is somewhat unique in that it has legal separation as an end in itself, compared to some states where the term "legally separated" may be used simply while they are pending a divorce. And because a legal separation is not that common, the terminology used in federal law does not completely match that used in Colorado's Uniform Dissolution of Marriage Act.

Per the Internal Revenue Code:

“an individual who is legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married.”

26 U.S. Code § 6013(d)(2).

Note the terminology? The same statutory provision uses "legally separated" and "decree of separate maintenance" interchangeably. Similarly, And IRS Publication 504, Divorced or Separated Individuals, states on p.3:

“Unmarried persons. You are unmarried for the whole year if.. You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. You must follow your state law to determine if you are divorced or legally separated.” (p.3)

Tax Filing After Annulment

An annulment is the most complicated tax situation of all. Once the marriage is annulled, the former spouses are no longer married, so must file as single taxpayers.

However, there are additional consequences with an annulment, which, technically, means the marriage was undone and never happened. The IRS requires the couple to amend their past tax returns for the past 3 years, using a Form 1040X Amended U.S. Individual Income Tax Return:

"You have obtained a decree of annulment, which holds that no valid marriage ever existed. You must file amended returns (Form 1040-X, Amended U.S. Individual Income Tax Return) for all tax years affected by the annulment that aren’t closed by the statute of limitations. The statute of limitations generally doesn’t end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. On the amended return, you will change your filing status to single or, if you meet certain requirements, head of household."

IRS Publication 504, Divorced or Separated Individuals, p.3.

If you annulled your marriage, both spouses should confer with tax professionals for guidance on refiling their taxes and handling any liabilities owed.

Claiming Divorce Fees on Your Taxes

Finally, spouses cannot deduct on their tax return legal or other fees incurred during a dissolution of marriage:

"Costs of Getting a Divorce.

You can’t deduct legal fees and court costs for getting a divorce. In addition, you can’t deduct legal fees paid for tax advice in connection with a divorce and legal fees to get alimony or fees you pay to appraisers, actuaries, and accountants for services in determining your correct tax or in helping to get alimony."

IRS Publication 504, Divorced or Separated Individuals, p.22.

FAQ - Tax and Divorce, etc