It's that time of year when we all begin to think about the thrilling prospect of income tax returns. However, individuals who have recently divorced are often surprised to discover the impact that their new relationship status has on their tax obligations. Here are three of the most unexpected issues that you may possibly encounter:
Your refund is delayed because your name or address has changed.
During or after divorce, you or your ex-spouse probably moved out of the family home. If you are the one who moved, you will want to file a "change of address" form with the Internal Revenue Service (IRS). Otherwise, your refund check may be delayed.
Likewise, your refund may be delayed if your name no longer matches the one on file with the Social Security Administration. If you changed your last name after your divorce, you will need to apply for an updated Social Security Card.
You are held responsible for your ex-spouse's taxes.
When you were married, you likely chose to file jointly to take advantage of the tax benefits. However, this approach may have drawbacks that appear after divorce. Because you are equally responsible for interest, penalties and taxes owed on any jointly filed returns, you could potentially end up having to pay the taxes on money earned by your ex-spouse.
The good news is that it may be possible to escape unfair tax responsibilities. The IRS offers three different types of relief: separation of liability, innocent spouse relief and equitable relief.
Fewer exemptions mean you end up owing more.
In former years, you may have claimed an exemption for your spouse and/or children. After divorce, however, you will not receive an exemption for your spouse. Depending on the child custody arrangement, you may not be able to claim your children either. This could lead to you owing much more in taxes - or receiving a far smaller refund.
While you can't completely erase the tax impact of divorce, understanding it in advance can allow you to make financial preparations. You and your budget don't have to be caught off-guard.