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Taxes and Divorce in Kentucky

In my divorce practice, I frequently see questions of taxation arise. All too often, one spouse will have been the long time preparer of household financial documents and expects to continue on with the chore out of habit, but with the shattering of the trust that comes about from the end of a marriage, there also comes a reluctance to cooperate.

There are some good general principles to adhere with regard to questions about taxation in a divorce, and there are certain predictions that a good attorney can make regarding the likely rulings of judges in Louisville as they apply Kentucky law.

- Tax returns for the year in which the divorce decree is issued should almost always be filed jointly, assuming that neither party has underlying problems regarding unpaid taxes or unreported income. With the proliferation of tax software, it is fairly simple to prepare one set of returns to file jointly and one set of returns individually to determine the most advantageous filing.

- If there is a dispute as to the disposition of tax refunds, they can be held in attorney escrow or paid into a court receiver's office pending allocation by the court.

- Although the court can allocate unsatisfied prior year tax obligations between the parties, the IRS is empowered to enforce those jointly against both parties. The remedy the wronged spouse has is to seek sanctions against the defaulting spouse in the family court, and the court can order a restoration of funds to the wronged party (which are domestic support obligations, and which are nondischargeable in bankruptcy).

- The general IRS rule provides that in the absence of a directive of the trial court, dependent deductions and exemptions go to the parent who has the child or children over 50% of the time. Kentucky courts, however, usually either divide these deductions or exemptions among alternate tax years, thus meeting the exception to the general Federal rule. Another method less frequently used involves each party to calculate taxes with a goal to maximizing the tax benefits afforded by the children, and to equalize the benefit with a separate payment to the other spouse.

When divorcing, it is important that your attorney be conversant on these tax issues in order to fully meet your needs, and if you don't understand what you're being told, ask questions.