When a couple divorces, the court must divide all the joint property and debts. Although the parties often agree how to divide their property, the court must accept that division. Courts commonly divide federal tax refunds between the parties. If the parties have not filed federal tax returns, the court will often order under what status they should file their returns, as well as how any refund will be divided.
The process for obtaining a divorce varies in every state. Generally, one spouse files for divorce and serves notice of the divorce on the other spouse. The other spouse then must file an answer to the divorce within a statutory time period. If the parties cannot agree on certain issues in the divorce, such as property and custody, most states have some sort of settlement process, such as mediation, which disagreeing divorcing couples attend in an attempt to work out a settlement. If the parties still cannot agree, the court holds a bench trial and decides any issues.
Most states divide a couple's marital property equitably, which is a legal way of saying "fairly." This means different things in different circumstances. In most circumstances, it means adding up all the marital assets, subtracting the marital debts, and assigning the assets and the debts to the parties equally to the extent that is possible. When the amount is known, federal tax refunds, are part of the assets of the parties. If the amount is unknown, the court may divide the refund separately. If the case does not go to trial, the parties need to agree to divide the assets equitably in the same way that a court does. Their agreement becomes official once the court accepts it.
Federal Tax Considerations
To file as married persons on any year's federal tax return, a couple must still be married on December 31st of that fiscal year. If the divorce was final on or before that day, each party must file as a single person. If eligible to file as married, the parties can either file taxes as married filing separately or jointly. However, they cannot file jointly if they were separated for the last six months of the tax year. Generally, they should file with the status that will result in the largest overall refund. It is always best to check with an accountant for specifics of a particular situation, as filing with married-filing-separately status has implications for filing as the head of household and claiming children as dependents.
Divorce can be a long process. It is possible that a couple will need to file tax returns while the divorce is pending. Ideally, both parties should work together to file them on time. If they cannot work together, they can ask the court for temporary orders concerning filing tax returns. If one spouse owes a separate obligation, such as past due child support to a former spouse or debt to a government agency, the IRS will take that amount out of a joint refund. However, the other spouse can file IRS form 8379 to receive her portion of the refund.