Clients who divorced in 2008 will have to deal with several tax matters affecting them in 2009. A change in marital status will likely result in a change in exemptions, adjustments, deductions, or credits an employed individual will claim on his or her tax return. It will be necessary for your client to provide his/her employer with a new Form W-4 to change withholding status or number of allowances. If the divorce changes withholding status or the number of allowances claimed, the employer should be provided with a new Form W-4 within 10 days after the divorce, if your client has been claiming married status. Generally, a new Form W-4 can be submitted at any time to change the number of withholding allowances for any other reason.
If your client is the recipient of alimony payments, it is important for her/him to estimate the taxes she/he will have to pay with an increase in her/his income. This should be done sooner, rather than later, in order to avoid penalties or deficits in tax payments.
If your client made joint estimated tax payments for 2008, and he/she was divorced during the year, either your client or his/her former spouse can claim all of the joint payments, or each can claim part of them. If they cannot agree on how to divide the payments, they must divide them in proportion to each ex-spouse's individual tax as shown on their separate returns for 2008. If your client claims any of the joint payments on his/her tax return, they should enter their former spouse's social security number (SSN) in the space provided on the front of Form 1040 or Form 1040A.
Record-keeping is one of the most important steps in tax planning for a client whose tax records suddenly have been split in two. It is important to keep tax records for three years after filing tax returns. Your client needs to have copies of all records, or errors will occur in filing their taxes in the year following the divorce that could raise red flags with the IRS. Your client should maintain accurate records of all W-2s, 1099s, mutual fund statements, brokerage fund statements and other investment information. Too often problems arise when suddenly single people realize the former spouse has the paperwork when the time has come to file taxes. Requiring copies of all receipts and records would be a good thing to iron out during the divorce negotiations.
When filing separately for the first time, your client will be faced with other issues. Joint custody of the children requires a decision on which parent claims which child in terms of dependents. Your client needs to know who is claiming which child, or another red flag could go up at the IRS.
The best advice you can give to your recently divorced client is to seek the advice of their financial professional shortly after the divorce.
Marty Varon, CPA, CVA, JD; Sue Varon, Esq.
Alternative Resolution Methods, Inc.
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