If you have completed, or are in the middle of, a Wisconsin divorce should be aware of the following tax issues:
- Support revisions: According to Wisconsin Statutes 767.54, as long as there is a child support or family support obligation, both parents are required to exchange “financial information” every year. Neither the type of financial information, nor the timing, is specified. Most people assume that this means an exchange of tax returns in April. Your Wisconsin divorce or paternity orders may contain a section indicating what exactly must be exchanged, and when. Even if your order does not include this language, the law still applies. Therefore, in order to ensure that child or family support is accurately based on current income, parents should insist on this information exchange. A court hearing is not required—the parents simply exchange the information on their own. If the other parent refuses, however, he/she can be held in contempt.
- Head of household status: Head of Household is a tax filing status available to unmarried parents. It may be worth a deduction of several thousand. A parent who has placement of a child for more than one-half of the year may file as Head of Household. Your Wisconsin divorce or custody order should state which parent may use this filing status. If not, you must follow the IRS rules. If both parents mistakenly file as HoH on the same child, the IRS may reject the tax returns. However, you can revise your order in some cases so the Head of Household status matches with your child placement.
- Dependent child tax exemption: Children under 17 qualify for this credit, which can be worth up to $1,000. Again, this credit is usually awarded between parents in the Wisconsin divorce or custody order. And again, the IRS may reject the return if both parents claim it for the same child. It is often alternated annually. If your order does not specify who claims the credit, or if you believe you should claim the credit, earlier orders can be revised for this purpose.
- Itemized deductions: In the year of divorce, spouses must allocate which of them can claim itemized deductions, including real estate taxes, mortgage interest, charity, healthcare, etc. This allocation may depend on how these expenses were paid during the divorce. Because these deductions can have a great effect on taxes, they must be addressed in any Wisconsin divorce judgment.
If your court order does not address these issues, or if it does not fairly fit your current circumstances, I encourage you to contact me for a free consultation.