Dealing with Estimated Tax Payments During a Divorce

What Are Estimated Payments & Do I Have to Make Them?

Most people have taxes withheld from their income. Every paycheck, you will see these deductions. This is how most taxpayers pay their taxes, and it is why you may receive a refund for having paid too much when filing your tax return. Estimated payments are tax payments made throughout the year for income that is not subject to automatic withholding. Most people make estimated payments quarterly.

Examples of types of income that are not subject to withholding:

  • Income from self-employment
  • Dividends
  • Earned interest
  • Rents
  • Alimony

According to the IRS, taxpayers generally must pay at least 90% of their taxes throughout the year through either withholding, estimated payments, or a combination of the two. Failure to do this can result in an estimated tax penalty.

Which Party Makes Estimated Tax Payments During a Divorce?

Because married couples generally file their taxes jointly, they pay their taxes out of their household finances. As long as they stay married and file jointly, it doesn’t really matter how they make their estimated tax payments or whose account they come out of. However, when a couple divorces, these estimated payments can get tricky. Claiming those estimated payments once you’re divorced can also be complicated.

Typically, while your divorce is in process, you will continue to pay bills and make estimated payments as you normally would have while married. Once your divorce is finalized, you will each be responsible for your own estimated payments.

If you and your former spouse made estimated payments in the year you divorced, you can negotiate who can claim those estimated payments on their taxes and how much. In some cases, couples will agree to have one spouse claim the total amount of estimated payments on their taxes. Meanwhile, other couples will split the claim 50/50 or by some other ratio that makes sense for them and their individual situations.

Regardless of how you and your former spouse decide to split the estimated tax payment claim, it is recommended that you include an explanation of how it is divided with your tax return.

How Are Overpayments Handled?

As with withholdings, overpayments can happen with estimated taxes. Just as with claiming estimated payments, you and your former spouse must agree on how any overpayments are split. For example, assume you were married all of 2021 and then divorced in 2022. Let’s also assume that you and your spouse had an overpayment on your taxes in 2021, and you and your spouse applied the overpayment to your 2022 taxes. This overpayment will need to be split between you and your ex-spouse, and you will need to agree on how they are allocated. As with estimated payments, one person can take all of the overpayment, or it can be split between both parties.

Do I Need to Work with a CDFA?

A CDFA, or a certified divorce financial analyst, is someone whose job it is to help divorcing couples reach financially equitable divorce settlements. A CDFA will work with the divorcing couple and their attorneys during the divorce process. CDFAs typically have detailed knowledge of tax law, and to become certified, they must pass a test designed by the Institute for Divorce Financial Analysts (IDFA).

Working with a CDFA can be incredibly helpful for couples with a complicated financial situation or a complex tax situation. However, not all couples need this resource. Before hiring a CDFA, you should consult with your attorney to ensure it is truly necessary.

If you are going through a difficult divorce and need guidance from an experienced attorney, reach out to the Law Office of Alexandra White, PC. We have experience managing high-net-worth divorce cases, and our law firm has the resources you are looking for.