The Tax Consequences of Separation or Dissolution of A Marriage
Informal Separation
Informal separation
occurs when either or both parents leave their primary residence to
live permanently at another location. There is no exact legal test
to determine when a separation has occurred, but IRS regulations
favor an approach that the intent of the person leaving the former
residence is the decisive factor. Specifically, whether the person
leaving intends to permanently leave the former residence and never
return. Any parent that leaves a residence
without the intent of returning begins a six month tolling provision
that prevents married couples (even if they are still legally
married) from filing jointly if they are living apart. Note, the IRS
has no investigation procedures to count six month duration outside
of an audit, thus many couples continue to file as married filing
jointly even though they may not qualify under the IRS’ rules.
Formal
Separation
Unlike informal
separations, formal separations are created by court order after a
petition for separation is filed with the local county family court.
Legal separation has significant consequences for the division of a
married couple’s property at the state level, but may have little to
no impact for federal income tax. The IRS makes no determination of
a person’s filing status (e.g. single, head-of-household, married
filing jointly or married filing separately) without relying on
applicable state law.
Colorado, like the majority of states,
does not classify a legal separation as a formal termination of a
valid marriage. As a result, the IRS treats legally separated
couples in the same manner as informally separated couples (a couple
that lives separately for more than six months and do not intend to
return to a common residence are classified as single or
head-of-household). Again, like informal separation, IRS has no
investigation procedures to count six month duration outside of an
audit, thus many couples continue to file as married filing jointly
even though they may not qualify under the IRS’ rules.
Divorces/Dissolution of Marriage
Unlike separations, when
a divorce decree becomes final a marriage is ended and couple
generally cannot file as married. However, the same rules of a legal
separation may allow a divorced couple for file a final joint return
if the couple has not lived separately for more than six months
prior to the final divorce decree.
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