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Question: How can I figure out whether the the parties should complete their divorce in the current year?


Using Family Law Software, you can quickly determine whether the tax consequences are better if they complete the divorce in the current year, versus being married at the end of the year, and by how much.

A bit of background: The Filing Status determination depends on the parties' official marital status on December 31. So whether the parties complete their divorce by December 31 determines the filing statuses they may potentially claim.

Here is what you do to determine the marital status that generates the highest after-tax income.

1. Go to the "What If" Analysis screen (Lawyer tab >" What If" Analysis, or Negotiate tab > "What If" Analysis).

2. Set up three identical columns, using actual values for child support, spousal support and exemptions in each column.

3. Note the checkbox at the top of the screen about whether or not to assume full-year support and alimony. In this case, you would want NOT to make that assumption, because you want the actual current year results. (So these two checkboxes would be clear.)

4. In your three identical columns, now vary just the filing status, as follows:

Column 1. Married filing jointly (both parties)
Column 2: Married filing separately (both parties)
Column 3: Single / Head of Household.

Columns 1 and 2 are the alternative filing statuses the parties could use if they are still married at the end of the current year..

Column 2 could possibly be Married Filing Separately / Head of Household, if the parties are separated for more than 6 months during the year and one parent has the child living with him or her for more than six months.

Column 3 represents the "divorced by the end of the year" filing status. It could also be Single/Single if there are no children who would qualify a spouse for Head of Household. Or, it could be Head of Household / Head of Household, if each spouse has a child living with him or her for more than half the year and otherwise qualifies for that filing status.

The Head of Household filing status has several requirements. Be sure that the party qualifies.

Click here for information about the Head of Household filing status

5. You are now all set up. Look at the line of the screen, at or towards the bottom, labeled, "Combined," referring to Combined Net Income After Taxes. The highest number reflects the column with the best tax result.

Also, look at the magnitude of the difference. If it is small, then other factors should perhaps determine what the parties do. But if it is significant, then this analysis can be a determining factor in what the parties do -- and an important value you bring to the process by figuring this out for them.