Tax and Financial Planning through Marriage or Divorce

ARTICLE | March 13, 2025

Authored by Schlenner Wenner & Co

Marriage status significantly impacts tax filing and financial planning strategies in various ways. From a financial standpoint, marriage status changes, both through marriage and divorce, can either offer significant tax benefits or pose potential drawbacks. In this context, the role of an accountant becomes critical, guiding individuals through the intricate tax implications associated with their marital status.

Upon tying the knot, couples have two main tax-filing options: Married Filing Jointly or Married Filing Separately. For many, filing jointly offers significant tax benefits. A joint filing allows for a combined standard deduction, potentially putting the couple in a lower tax bracket. It also opens up eligibility for several tax credits, such as the Earned Income Tax Credit, Child and Dependent Care Tax Credit, and the American Opportunity and Lifetime Learning Education Tax Credits. Furthermore, married couples can leave an unlimited amount of money to their spouses without generating any estate tax, thus preserving the estate.

However, marriage can also present certain tax disadvantages. For instance, high-earning couples could face a marriage penalty, paying more tax due to a higher income bracket. Similarly, limitations on itemized deductions for state and local taxes (SALT) can negatively impact married couples.

On the other hand, divorce or separation also leads to numerous tax considerations. Things such as alimony, child support, and property transfers can all have tax implications. The IRS generally considers taxpayers as married until they receive a final decree of divorce or separate maintenance. Therefore, the tax treatment of alimony and separate maintenance payments can depend on when the divorce or separation agreement was executed.

In all these scenarios, accountants play a pivotal role. They help clients navigate the complex world of tax laws and financial planning. They can assist couples in determining the best way to file taxes, consider the implications of claiming dependents, and guide them through the impacts of alimony or child support payments. For individuals going through a divorce, accountants can also help in understanding how to report property transfers and choose the appropriate filing status.

In conclusion, marriage status considerably affects tax filing and financial planning. Whether clients are entering into or ending a marriage, accountants serve as trusted advisors, helping them understand their financial situation and make informed decisions. Therefore, it's highly advisable for individuals experiencing a change in marriage status to consult with an accountant or financial professional to ensure they are prepared for the tax implications that come with such life events.

We are available to answer any tax questions you may have regarding your marriage status, just give us a call.