WHEN IS A MARRIAGE TERMINATED FOR TAX PURPOSES?
A couple remains married for tax purposes until a final decree of divorce is issued by a domestic relations court; a domestic relations court issues a final decree constituting a legal separation under local law, requiring the couple to live apart; or the abandoned spouse rule applies.
An individual is required to live apart from his or her spouse for the entire last six months of the tax year to achieve abandoned spouse status. In some divorce situations, where the abandoned spouse rule does not apply, a spouse may be reluctant to file a joint return due to the joint and several tax liability resulting from joint returns. Accordingly, in situations in which the abandoned spouse rule cannot be met but a spouse is reluctant to file a joint return, one option is for the spouse to file under the status of married filing separately, then wait to determine if any instances of concern regarding joint and several tax liability arise, and then elect to file an amended joint return within three years of the original due date of the separately filed returns. An amended return can be filed under joint return status where separate returns had originally been filed. However, the amended return must be filed within three years of the original due date, excluding extensions, of the separate returns.
An individual who has not received either a decree of divorce or separate maintenance from a court as of the last day of a tax year and who fails to qualify as an abandoned spouse is considered married for tax purposes. The taxpayer must therefore file a joint return or files as married filing separate.
The potential tax savings from delaying the divorce to file a joint return may not justify the additional liability exposure created by the joint filing. In some instances, completing the divorce and terminating the marriage may in fact save income taxes.
Once a marriage is terminated for tax purposes, the former spouses are no longer eligible to file a joint income tax return. The individuals are then faced with the problem of dividing income and deductions on the divorce-year return. Also, special issues arise for allocating mortgage interest and taxes in divorce situations. Finally, the rules governing the reporting of income and deductions differ significantly between community property and equitable distribution states.